Goldman Sachs analyst Chikai Tanaka downgraded the rating on Otsuka (OSUKF – Research Report) to a Sell today, setting a price target of Yen3,110.00.
Chikai Tanaka has given his Sell rating due to a combination of factors impacting Otsuka’s future financial performance. The decision is influenced by the anticipation of a decline in operating profits for FY12/26, as the demand for PC upgrades is expected to decrease. This anticipated drop in demand could lead to a reduction in the company’s price-to-earnings (P/E) levels and its premium compared to the sector average, similar to trends observed in previous PC cycles.
Additionally, while strong earnings are projected in the short term due to the ongoing PC upgrade cycle, there are concerns about the company’s ability to sustain growth in sales per employee and improve profitability through sales efficiency and price increases. The downgrade from Neutral to Sell reflects these concerns, with a revised 12-month target price of ¥3,110, indicating a potential downside of 12%. Upside risks that could counter this outlook include increased investments by mid-sized companies and SMEs, a more prolonged PC upgrade cycle, and enhanced shareholder strategies.