Morgan Stanley Bearish on Sanyo

Morgan Stanley (MS) resumed its rating of Sanyo Electric Co (SANYY) (Tokyo:6764) today at "underweight," which likely put additional downward pressure on Sanyo shares in an overall down-day for the Nikkei 225 Stock Average.

Morgan gave Sanyo a target share price of 180 yen ($7.69 ADR equivalent) which is 23% less than its Monday close of 234 yen ($10 ADR equiv.). One Sanyo ADR is equal to 5 ordinary shares. Sanyo's ordinary shares lost 2.90% on the day. Its ADRs closed at $10.35 on Friday.

Sanyo is in the middle of a huge corporate restructuring and a sizable capital injection by outside investors including Goldman Sachs (GS).

I wonder if the unfavorable rating by Morgan Stanley has anything to do with the Sony (SNE), Dell (DELL), Apple (AAPL) notebook PC lithium-ion battery recall. Sanyo is the world's largest manufacturer of such batteries but interestingly its shares gained over 4% (and at one point as much as 7.8%) during period between the Dell recall and the end of last week.

Summary of Sanyo's Q1 earnings release July 27th:

Sanyo's net loss fell substantially in Q1 to 9.67 billion yen ($82.7m) after a 26.2 billion yen ($224m) loss in Q1 the year prior. However, sales also fell 11% to 504.1 billion yen ($4.3b). Sanyo President Toshimasa Iue said that the drivers of revenues this period and in the future will be rechargeable batteries and solar cells. (emphasis added) This was expected given press releases in the first half of the year that announced the firm's heavy investments in the respective areas. Earnings coverage by Bloomberg.com stated that Sanyo has eliminated 14,000 jobs or 15% of its workforce, in addition to selling real estate and assets worth 129 billion yen ($1.1b).

Sanyo is maintaining its full-year forecasts of net income of 20 billion yen ($171m) on sales of 2.4 trillion yen ($20.5b) and operating profit of 65 billion yen ($556m).

Click here for a list of Sanyo-related posts on Seeking Alpha.

Sanyo Electric Co (SANYY) 1-year chart: