Feb 05, 2015 06:03 AM EST

Sony shares post biggest daily gain in nine years after upgrading outlook

Sony Corp's (6758.T) shares surged on Thursday to post their biggest daily gain in nine years after the consumer electronics and entertainment group lifted its full-year forecast, raising hopes its restructuring efforts were finally bearing fruit.

Backed by cost cuts and stronger sales of sensors and videogames, Sony on Wednesday trimmed its net loss estimate for the year through end-March and forecast a full-year operating profit instead of a loss.

This was Sony's first upgrade of a forecast since Kazuo Hirai took over as chief executive in 2012 and came after six previous warnings under his watch.

Its shares rose 12 percent to 3,101.5 yen, the highest close since May 2010, after briefly rising 18 percent to 3,269 yen, the maximum allowed for the day. The shares last rose 18 percent in early 2006.

Sony's shares have doubled in value over the past year and are among the top performers on the Tokyo Stock Exchange, although the company is set to book its sixth net loss in seven years.

The results bolstered confidence in Sony's restructuring efforts led by CFO Kenichiro Yoshida, who took the job almost a year ago, said investors and analysts.

After selling its PC business and spinning off its TV operations, Sony is cutting thousands of jobs in its mobile phone business to cope with falling smartphone sales. It is also spending more on image sensors, used in smartphone cameras and emerging as one of the company's strongest product lines.

Investors have also cited expectations that Yoshida was prepared to sell off or shut down operations that fail to turn profitable through costs cuts. They will get an update on Sony's thinking when Hirai presents the company's business strategy on Feb. 18.

"We like the ongoing consumer electronics exit strategy. And we like the focus on cost-control," said Jefferies analyst Atul Goyal, who called Sony's numbers "the strongest result in the last decade". He recommended a "buy" on the shares with a price target of 3,520 yen.

Sony's five-year credit default swaps SONY5YJPAC=MG, which show the price of insuring its debt against default, contracted sharply to 91 basis points on Thursday from levels of 100 bps before the outlook announcement, indicating the company's improving credit profile.

The sharp rise in the shares could also be attributed to speculative trading, some investors said.

"Of course the market is recognizing the improvement in operating outlook from a loss to a profit but we're seeing a trend of strong reactions to even slight changes, positive or otherwise," said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management.

Shares in Hitachi Ltd (6501.T), which gave a weaker-than-expected full-year outlook, fell 10 percent on Thursday.

"Given huge spikes in trading volume in these two shares, it is almost certain that some long-short hedge funds are closing long-Hitachi, short-Sony positions, or making fresh bets in Sony and against Hitachi," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

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