JR East Earnings: Recovering Passenger Demand and Operating Leverage Drive Strong Result

JR East's first-half fiscal 2024 operating income tripled to JPY 192 billion compared with the prior corresponding period, or PCP. The strong result was a little better than expected and driven by a strong recovery of demand as the pandemic impact fades. Management maintained full-year EBIT guidance of JPY 270 billion, with a weaker second half expected because of a seasonal increase in maintenance and other costs. Management noted that the transportation segment was recovering faster than expected, while the retail and real estate segments fell short of expectations. We upgrade our earnings forecasts to a little above guidance following the strong first half and lift our fair value estimate 4% to JPY 7,500 per share. At current prices, the stock screens as fairly valued.