Financial Connections reported on December 12 (Editor: Shi Zhengcheng) that with the close of the Tokyo market on Wednesday, the global Entertainment and Consumer Electronics giant $Sony Group (6758.JP)$ rose nearly 3%, again setting a new historical high for its stock price.

It is worth mentioning that the previous high that Sony broke in this round of increase dates back to March 2000, 24 years ago. During this period, Sony's market cap once evaporated by 95.37% (in December 2012), and then returned to its peak by surging 22 times.

This 'deep V reversal' spanning 24 years reflects the background in which gaming, film and television entertainment, and the 'grains economy' have become guests of honor in the Capital Markets, and how the former electronic industry giant has transformed into a massive Entertainment empire with reconstructed value.

The unique IP economy asset portfolio has also made Sony a target of interest for Global Institutions. According to reports, Blackrock, the world's largest asset management giant, increased its shareholding in Sony last week, and the Norwegian government pension fund also increased its holdings earlier this year. The Saudi sovereign fund, which prefers the entertainment industry, is also actively seeking investment opportunities in Sony.

Capitalizing on the wave of the entertainment industry.

Sony expects that for the current fiscal year ending in March next year, the company's operating profit will reach 1.31 trillion yen (approximately 62.4 billion yuan), about six times that of the 1999 fiscal year. The Entertainment business is expected to contribute 60% of the overall profit, while the Electronics business is no longer reported as a separate department.

Since the 1999 fiscal year, Sony's gaming business profit has increased sevenfold, while the music and film businesses have grown five times and doubled, respectively.

Mizuho Securities expects that the profit of Sony's gaming department will increase by 40% by the 2026 fiscal year compared to the level expected this year, while the music and film sectors will grow by more than 20% and 50%, respectively.

Yasuo Nakane, head of Global Technology Research at Mizuho, interpreted that Sony has a horizontal axis in film, music, gaming, and anime, and a vertical axis from production to distribution. This company also possesses electronic technology, including image Sensors, cameras, and Software, placing it in a unique position compared to $Apple (AAPL.US)$ 、$Netflix (NFLX.US)$or Samsung.

According to statistics, by the end of the last fiscal year, Sony Music owned the copyrights to 6.24 million songs. In comparison, Universal Music Group has a catalog of 4.5 million songs. In recent years, the anime Business has been making frequent strides, not only with the animation company Aniplex but also by acquiring the American streaming service Crunchyroll in 2021.

As for the gaming Business, one picture can illustrate the situation. Tomorrow morning, Beijing time, the "Game Awards" (TGA), known as the "Oscars" of the Global gaming industry, will hold its annual awards ceremony. Sony Interactive Entertainment's "Cosmic Robot" will compete for the "Game of the Year" award against Game Science's "Black Myth: Wukong", Sega Atlus's "Metaphor: ReFantazio", and other works.

According to statistics, since 2015, Sony has had at least one work nominated for the "Game Awards Game of the Year" every year, while Sony's long-standing rival, known for its extravagant spending,$Microsoft (MSFT.US)$, has still yet to achieve a breakthrough nomination. Incidentally, the Los Angeles Peacock Theater, where the TGA awards ceremony is held, was named the "Microsoft Theater" from 2015 to 2023.

Recently, Sony also confirmed its investment in a comprehensive entertainment group in Japan. $Kadokawa (9468.JP)$ Initiating acquisition discussions. Kadokawa not only owns game developers FromSoftware (Dark Souls series, Elden Ring) and Acquire CORP (Octopath Traveler series), but is also one of Japan's three major publishing giants, boasting a strong portfolio of anime and light novel resources. From the perspective of investors, this company can be regarded as a 'gold mine' in the IP economy and 'grain' economy.

The acquisition intentions of industry giant Sony have also contributed to Kadokawa's stock price rising nearly 30% over the past month.

There is still a distance to becoming 'stronger'.

Although Sony holds a vast array of entertainment IP resources, the company's operational aspects still fall short of the world's top entertainment industry giants, which is the logical basis for Analysts to remain optimistic about Sony's future stock performance.

The company expects that the operating margin for its gaming, music, and film businesses for the fiscal year 2024 will be 10.3%, far below Netflix's 27%,$Disney (DIS.US)$and also 17%. Meanwhile, Sony's rolling PE is around 19 times, which, although higher than the average level of the Main Board in Japan, is still comparable to 'cash-rich' companies.$Nintendo (7974.JP)$Compared to the popular stocks in the 'millet economy', $Sanrio (8136.JP)$it is not considered expensive at (42 times).

In horizontal comparison, Sony's current Market Cap is only one-third of Netflix.

Daisuke Aiba, an Analyst at Iwai Cosmo Securities in Japan, stated that if Sony acquires Kadokawa, adding Kadokawa's content on Crunchyroll may generate synergistic effects.

Sony has also disclosed that, within the period ending March 2027, a total of 1.8 trillion yen (approximately 85.6 billion yuan) will be allocated for Share Buyback and acquisitions.

Mizuho Securities expects that as the Entertainment business becomes a driving force, Sony's EPS will reach 229 yen in the 2027 fiscal year, which is 40% higher than the company's expectations for this fiscal year. Assuming the PE remains unchanged, this also means a 40% potential increase in stock price.

编辑/jayden