Oracle Japan Profits 'Unexpectedly' Down In Fourth Quarter

In a report issued Friday, Morgan Stanley MUFG analyst Masaharu Miyachi takes a look at Oracle Corporation ORCL Japan (TYO:4716) and the “unexpected” decline in profit it registered in the fourth quarter.

F5/15 results also fell short of consensus, guidance for F5/16 was quite low and the dividend policy was not clearly outlined. All these factors left a negative impression on the research firm, which rates the stock an Equal-weight, as it expects the stock “to ease,” for they see –for the time being, at least- few catalysts for a share price recovery.

Results & Outlook

The management’s comments had led Morgan Stanley to expect strong sales and operating profit for the fourth quarter. However, sales came in flat, and operating profit, surprisingly down 4 percent. Hardware product sales were also down 35 percent, while services revenues fell 3 percent. The only positive: licenses surged 3 percent.

The company said profit fell on the back of delayed projects and higher outsourcing costs driven by a weaker Yen.

Going forward, Oracle Japan guided “new license + support sales up 3-4% in F5/16, a slower growth rate than F5/15 (+7%).” Even the top of its forecast range EPS of ¥254 stands below Morgan Stanley’s estimate and consensus.

“Even allowing for its tendency to guide conservatively, plans to significantly hike up front spending to boost cloud business suggest profit growth is likely to effectively stall in F5/16,” the analysts add.

Morgan Stanley set a price target of ¥4,800 on shares of Oracle Japan.