Since announcing on Friday that it intended to sell a portion of its automotive systems business, shares of Panasonic Holdings (6752.T), a company based in Japan, have increased by almost 10%. The potential listing of the section has sparked hopes for further restructuring.
Following their most significant one-day increase in six months on the last day of last week due to news that the firm intended to sell a portion of the unit to funds managed by Apollo Global Management, the shares saw another spike on Monday.
Analysts speculated that Panasonic might be imitating Hitachi (6501.T), a different conglomerate that recently divested several companies to become a digitally-focused services company.
According to Damian Thong, an analyst at Macquarie in Tokyo, as competition disrupts conventional growth areas, Panasonic must adapt quickly.
“They started by being big and slow, which is fine if the market was slow, but because the markets are changing, they need to move faster,” Thong, who is from Singapore, said.
“They need to learn to deal with a more challenging, fluid external environment.” Panasonic and Hitachi are very different from the standpoint of market performance. When dividends are considered, Hitachi’s shares have more than tripled in value over the past ten years, while Panasonic’s have returned 87%.
Investors were pleased with the prospect of selling a portion of the automobile division, which makes electronics and cockpit equipment. Panasonic’s news surprised investors because they had not anticipated the company reducing its holdings at this particular time.
Analysts at Jefferies stated in a research report that “it is going to be a long journey with ups and downs, but if Panasonic can further restructure its portfolio, it can become another transformation case study.”
According to them, Panasonic’s proposal is probably the first step in the company’s transformation into one with a higher return on equity.
As a gauge of profitability, Hitachi’s return on average common equity has averaged 14.6% over the past three years, while Panasonic’s has been 8%, according to LSEG.
Ulrike Schaede, a University of California San Diego professor of Japanese management, described Hitachi’s 2019 sale of its chemicals division as a “watershed event in Japan’s business reinvention” in a book published in 2020.
She stated then that other significant Japanese corporations were preparing for similar “hard decisions.”
The automotive division of Panasonic is distinct from its energy division, which produces batteries for electric cars, including Tesla (TSLA.O.) automobiles.