Second Day

1. Japanese Real Estates blue chips seems oversold, although the economic outlook for Japan is OK at best, their price/NAV is not demanding, with most trading below their NAV by a wide margin. (exact number is diverse, but cap rate is betwen 3~5%). Market is extremely bearish on the real estate market and worry that land price will drop continuously.

2. On the other hand, HK developers got a kick today and seems like they can finally get a rebound. Bond insuer in US got to keep their rating and that should serve as the near term catalyst for the financial and real estate shares. *** I think HSI has bottomed out in the short term ( 3 days). China market back up today and has huge impact on HK market. I think US slowdown is pretty much priced it, only the China part is shaky. However... I expect more downside from China in the medium term ( 3 month).

3. NCTY announced earnings on Feb 21 Thur and is up 12%+ on Friday. PWRD announce on Monday Feb 22, early morning and was up 12% in the same day. Should have sell NCTY and buy PWRD on Friday, and make use of the delay in earnings announcement. They are fairy similar in terms of their target gamers and hence one's result is quite indicative of the other. Of course NCTY is booast by burning crusade, but PWRD is also going the "high-end" road with its 3D games. Anyways.... this different in announcement time created trading opportunities. The risk is not very big either as it is an intra-sector trade.

On Sony:

News flow:
1. Nikkei reported today: saying that Sony will investover ��100bn in Sharp's new Sakai facility, this is positive for both companies: Sharp: less capex, less uncertainty on over capacity. Sony: In-line with their "asset light" strategy, diversify its suppliers source, (Sony already have a JV with Samsung to make 7G and 8G LCD panels).
2. Feb 20, 2008. Sony sold one of its chip manufacturing facility to Toshiba (it makes Cell processer for PS3 and RSX graphic chips) This was announced earlier in Oct 2007, but the details was released in Feb 2008.
3. Toshiba gave up on HD-DVD, Blue-Ray will difinately win now
4. PS3 sales (both hardware and software) see significant improvement since Dec 2007, catching up with Wii in January.
¡¡
My comment:
Valuation is not demanding with P/E of 15.5 (FY1), compare both to the sector and historical valuation.
Sony's management vigorously restructure the company by selling off non-core asset ( Sony-Life, chip factory) and setting up JV with competitors to improve margins. I appraise them for their effort and believe that Sony's management is heading to the right direction. This is the core of my investment view, to buy Sony as a long term holding. A good management is a rare sight in Japan, and there are plenty researches showing that stocks with good management tend to outperfrom in the medium to long term, even in Japan.
I think Sony have gone past its worst years 2006~2007 (LCD price collapse, PS3 not selling well).
Going forward, I expect a stable LCD panel market (no more big drop in price, as suppliers have cut back on capex. at least ok for another year) Demand will slow down in the US (25% of total sales of Sony), but pricing is more driven by supply side. DRam is a good comparison.
PS3 profits should be on uptrend from now on, the bottleneck of PS3 is the lack of game titles. Analysts often missed this point, because it is usually the consumer electric analyst that cover the stock, not the game sector analyst. They think the software sales is lagging Nintendo and hence estimate minimal profit for the segment. In fact, PS3 is so high tech that most game developers need 1 year to learn how to make a good game in PS3, it had been like this for PS2, just that it is even harder to learn this time. Final Fantasy, Devil May Cry, MGS 4... they are all coming out this year, people will BUY a console just for them. You havn't even see the beginning yet. ( *** does not mean it is negative for Nintendo, they target different customers)
Risks:
Currency: FX risk will always be the biggest risk for Sony, but most of it has been priced it, Yen at 105 is not "news" anymore. They are mostly hedged (>50%).
LCD price drop: it is possible that a decline in end product price devastrate Sony's tiny margin (<5%). However, Sony had been cutting cost by making JV with competitors, management is aware of their weakness and actually doing something. (This is not common in Japan)
PS3: another price cut or delay of major titles will hurt, but I think the chance is small, given that PS3 is now only 100USD more than a Wii and blueray is THE next gen DVD. On software side, the chance that all developers delay their game at the same time is rare, and it may actually be benefitial for Sony if the major titles are not clamped into the same quarter (cannibalism of games and stable demand for hardware).