Fitch Ratings on Sept. 19 upgraded Sony Corp.'s ratings, citing the Japanese consumer electronics and entertainment giant's operating stability and improved business structure.
The rating agency upgraded Sony's long-term foreign and local currency issuer default ratings to BBB from BBB- with a positive outlook.
Fitch highlighted Sony's expansion of its recurring revenue base, especially in its gaming segments, while downsizing its more volatile consumer electronics business. Fitch said Sony has been focusing on its businesses that make more sales, such as its game software and music divisions.
The rating agency said Sony may face difficulties in turning around its smartphone business in the short term due to tougher competition, ongoing market-share loss and high component prices. "Stronger rivals and aggressively expanding Chinese competitors continue to pose a challenge to Sony's goal of becoming profitable in the segment," Fitch said.
Meanwhile, the agency said the company could see higher margins in its nonfinancial businesses, boosted by its gaming and semiconductor segments, and lower leverage with funds from operations adjusted leverage ratio below 1.5x.
Fitch said it forecasts healthy profitability for Sony in its fiscal year ending March 2020, with operating EBIT margin expected to be around 8% to 9%. It added that Sony's share buyback of ¥200 billion by March 2020 following its previous ¥100 billion share repurchase will not hurt its balance sheet.
The agency said it could further raise Sony's ratings if the company's EBIT margins exceed 7.5%, or if it sustains funds from operations adjusted leverage below 1.8x.
Fitch also said it could revise the outlook to stable if Sony's EBIT margins fall below 7.5% on a sustained basis, or if funds from operations adjusted leverage rises above 1.8x.
