Toshiba Corp.

The positive outlook on Toshiba reflects our view that its profitability has a more than one-in-three chance of recovering materially on cost reductions and business restructuring in the next year or so. This is despite harsh market conditions and stiff competition ahead. We may consider upgrading Toshiba in the coming year or so if the company maintains relatively sound financial standing, and at the same time, is highly likely to restore its EBITDA margin to about 7%. Cost reductions and the resulting improved operating efficiency could achieve this and help keep the margin stable thereafter. We may also consider upgrading Toshiba if its operating performance is likely to be more stable through enhanced governance and risk management under new management.

...Toshiba's profitability is likely to recover and stabilize in the next one to two years thanks to the effects of cost reductions and business restructuring. S&P Global Ratings expects Japan-based capital goods and diversified electronics company Toshiba Corp.'s EBITDA margin to improve to about 7% in fiscal 2019 (ending March 31, 2020). It declined to about 5% (our adjusted estimate) in fiscal 2018 on one-time factors. From fiscal 2019 onward, the margin is likely to stay relatively stable. Even if the global economy further slows, we believe the margin is likely to stabilize for two main reasons. First, its main businesses now center on relatively stable operations, such as infrastructure and energy. Second, the company has been restructuring some uncompetitive businesses that remain in its portfolio in which earnings are susceptible to external factors, such as its system large-scale integrated (LSI) circuit business. Nevertheless, we expect Toshiba's EBITDA margin to remain below those...

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