Matsushita in strong showing

TOKYO - Shares of Matsushita Electric Industrial rallied nearly 6 per cent to a four-year high yesterday after it surprised investors with a solid rise in profit and several brokerages upgraded the stock.

Matsushita, the maker of Panasonic brand electronics, said on Friday that it recorded an 11 per cent jump in operating profit for the July-September quarter, helped by strong sales of flat TVs and digital cameras, and a recovery in its devices division.

The upbeat result compared favourably to weak earnings across Japan's struggling consumer electronics sector. It also blew past the consensus forecast for a double-digit drop in profit. Matsushita itself had also predicted a fall.

"These results underline MEI's unrivalled comprehensive strength," UBS analyst Fumio Osanai wrote in a report. Osanai reiterated his "buy 2" rating and upgraded his target price on the stock to 2500 from 2000.

Matsushita's stock rose 5.93 per cent to 2055 yen. Earlier it went as high as 2080, a level last seen on June 13, 2001. Tokyo's electrical machinery index ended up 1.27 per cent.

Matsushita has enjoyed strong growth in sales of plasma display panel (PDP) TVs. It is also taking market share away from rivals in the digital camera market and logging healthy margins on high-end home appliances.

But it was the strong improvement in Matsushita's components and devices division that caught analysts most by surprise.

The division's operating profit margin jumped to 8 per cent from 1.7 per cent in the first quarter, reflecting strong demand for rechargeable batteries, robust sales of Matsushita products that use its chips and other parts, and cost cuts.

"The recovery in the devices business is attributable to higher in-house consumption of mainstay semiconductors in the company's own PDP TVs, DSCs (digital still cameras) and DVD recorders, sales of which are rising," Osanai wrote.

Among other brokerages, Deutsche Securities raised its rating to "buy" from "hold", Credit Suisse First Boston lifted its target price to 2300, and JP Morgan upgraded it to "overweight" from "neutral" while adding it to its list of focus stocks.

Deutsche Securities analyst Yasuo Nakane estimated that operating profit margin in Matsushita's PDP TV business was now at about 3 per cent, lower than the 5 per cent margin earned on liquid crystal display (LCD) TVs by rival Sharp.

But Nakane said Matsushita's margins were lower because it was investing aggressively to boost capacity and promote its TVs. He reckoned sacrificing margins now could help it win the battle in the fast-growing flat TV market over the long-term.

"The company is focusing on increasing its share in its overseas markets, which would generate earnings growth in the future, by reducing prices and aggressively advertising and promoting its products overseas," Nakane said.

- REUTERS