Sharp Corp.

The negative outlook reflects our view that there is a more than one-in-three chance within the next six to twelve months that the company's core cash flow ratios will not recover to levels commensurate with the ratings. This is because a failure to recover would create an imbalance with efforts to reduce costs and volatility of earnings in its LCD business, due to the global economic downturn caused by COVID-19. We may consider a downgrade if we see a growing possibility of the debt-to-EBITDA ratio continuously exceeding 5.5x in the next six to twelve months. This could occur if the pandemic persists and performance takes longer to recover than we assumed. We may consider revising the outlook upward to stable

...S&P Global Ratings expects the global economic downturn to slow the recovery of Sharp Corp.'s operating performance. Sharp's earnings are recovering after bottoming out in the January-March quarter 2020, when its supply chain was disrupted by the COVID-19 pandemic. However, earnings in a number of important businesses such as LCD panels will likely remain sluggish for a prolonged period, in our view. This also applies to copiers, which had generated stable profits. We believe solid performance of the home electrical appliances business will not compensate for weak earnings in these two segments, which account for 50% of consolidated revenue. Accordingly, we expect consolidated operating profit for fiscal 2020 (ending March 31, 2021) will fall short of the fiscal 2018 level of Ñ84 billion. Sharp's core LCD business will remain susceptible to fluctuations in supply and demand. The company has stabilized earnings in the LCD business by strategically shifting its product mix from small panels...

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