Company Reports

Narrow-moat-rated East Japan Railway, or JR East, reported a strong first quarter, largely in line with expectations. Revenue increased 9% to JPY 687 billion, and operating income increased 50% to JPY 120 billion compared with the same quarter last year. The firm is tracking well toward achieving operating income guidance for fiscal 2025 (year ending March 31, 2025) of JPY 370 billion given in April 2024. We maintain our earnings forecasts, which are largely in line with management targets, and our JPY 2,600 per share fair value estimate. The stock screens as fairly valued after recent share price weakness.

Narrow-moat-rated JR East earnings improved strongly in the year ending March 31, 2024, as passenger volumes recovered from the pandemic, aided by solid inbound tourism. Revenue increased 14% to JPY 2,730 billion, and operating income more than doubled to JPY 345 billion. The result modestly beat guidance and our expectations, but management largely maintained long-term earnings targets. We increase our fair value estimate by 4% to JPY 2,600 per share, mainly on the time value of money. At current prices, the stock is slightly overvalued.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

East Japan Railway Company, or JR East, is recovering strongly following the pandemic, with EBIT in the nine months to Dec. 31, 2023, nearly tripling on the prior corresponding period, or PCP, leading to management upgrading full-year guidance by 15% to JPY 310 billion. We align our fiscal 2024 EBIT forecast with guidance, an increase of just 9%, as we already expected the narrow-moat firm to beat prior guidance.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

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.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

Narrow-moat-rated East Japan Railway, or JR East, reported a doubling of operating income to JPY 80 billion in the June quarter, compared with the previous corresponding period, or PCP. Management maintained full-year guidance for operating income of JPY 270 billion and we leave our forecasts largely unchanged. Shares currently trade about 10% above our unchanged fair value estimate of JPY 7,200 per share.

We reinitiate research coverage of East Japan Railway Company, or JR East, with a fair value estimate of JPY 7,200. While a high-quality business, we think it is marginally overvalued. Shares currently trade at an 11% premium to our valuation, on a P/E ratio of 22 and offering a dividend yield of 1.4%. Significant improvement in returns to shareholders is unlikely in the medium term given a stretched balance sheet and significant capital expenditure requirements.

East Japan Railway Company, or JR East, is Japan’s largest railway network operator. It runs both long distance bullet trains, known as Shinkansen, and shorter municipal train routes around and from Tokyo. More than 40% of revenue is from conventional train services within the Greater Tokyo Area, where it served about 17 million passengers per day prior to the pandemic. About 20% of revenue is from Shinkansen connecting Tokyo with regional cities and popular tourist destinations, and most of the balance is from retail operations and real estate investments.

We are dropping coverage of East Japan Railway. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

East Japan Railway, or JRE, delivered third-quarter results that were below our expectations, mainly due to a larger-than-expected spillover effect from Typhoon Faxai and Typhoon Hagibis on sales and operating expenses. This prompted management to revise its fiscal 2020 revenue and operating income target downward to JPY 3,041 and JPY 459 million, respectively (versus JPY 3,070 and JPY 488 million previously). We have revised our fiscal 2020 and 2021 assumptions lower, factoring in not only a bigger-than-expected effect from the natural disaster, but also the likely near-term headwinds due to the global outbreak of the coronavirus. However, our revisions have a limited impact on our fair value estimate, or FVE. We maintain our FVE for narrow-moat JRE at JPY 9,500 per share, and consider shares fully valued at current levels. Given the negative sentiment around the coronavirus, JRE’s share price may experience further downside volatility in the near term.

East Japan Railway, or JRE, is Japan’s largest railway network operator running both long distance bullet trains (shinkansen) and shorter municipal train routes around and from the Greater Tokyo metropolitan area. JRE has been able to extract additional value to its regulated train transportation returns through redeveloping its stations into mixed commercial centers, with the most significant being Tokyo Station. We think being in Tokyo enables the company to garner attractive commercial rental returns above its peers in Japan and as a result its earnings are more diversified with 71% coming from its rail operations relative to main peer Central Japan Railway, where around 94% of operating profit is from rail.

East Japan Railway, or JRE, posted second-quarter results that were in line with our expectations. Given some of the potential headwinds, such as the risk of weaker demand following the latest hike in the consumption tax and disruption from Typhoon Hagibis in October, we have revised our fiscal 2020 growth and margin assumptions slightly lower, but this has a limited effect on our fair value estimate. We maintain our FVE for narrow-moat JRE at JPY 9,500 per share. Since the company released first-quarter results in late July, its share price has been flat. We consider shares fully valued at current levels and think investors are better served waiting for an improved entry point.

We maintain our fair value estimate for narrow-moat-rated East Japan Railway, or JRE, at JPY 9,500. We consider shares fully valued at current levels and think investors are better served waiting for a better entry point. Although JRE posted solid results that beat consensus estimates during the quarter, we don’t expect the growth momentum to continue through the coming quarters, given the near-term headwinds such as the impending consumption tax hike in October and negative spillover effects from the United States-China tariff war.

East Japan Railway, or JRE, is Japan’s largest railway network operator running both long distance bullet trains (shinkansen) and shorter municipal train routes around and from the Greater Tokyo metropolitan area. JRE has been able to extract additional value to its regulated train transportation returns through redeveloping its stations into mixed commercial centers, with the most significant being Tokyo Station. We think being in Tokyo enables the company to garner attractive commercial rental returns above its peers in Japan and as a result its earnings are more diversified with 71% coming from its rail operations relative to main peer Central Japan Railway, where around 94% of operating profit is from rail.

We are raising our fair value estimate for East Japan Railway, or JRE, to JPY 9500 from JPY 9200, reflecting stronger growth in JRE’s Suica and IT business in the medium term and after rolling our cash flow model. JRE’s fiscal year ending March 2019 revenue and operating income were in line with our forecasts, with steady ridership volume and stronger growth in the nontransportation segments. The firm’s migration toward real estate, retail, and Suica services in the medium to long term is trending in line with our expectations, and we believe that these complementary businesses should benefit from JRE’s leading rail assets, which is Japan’s largest by distance covered. However, we think JRE is fairly valued presently, given risks for margin pressures over the medium term.

East Japan Railway, or JRE, is Japan’s largest railway network operator running both long distance bullet trains (shinkansen) and shorter municipal train routes around and from the Greater Tokyo metropolitan area. JRE has been able to extract additional value to its regulated train transportation returns through redeveloping its stations into mixed commercial centers, with the most significant being Tokyo Station. We think being in Tokyo enables the company to garner attractive commercial rental returns above its peers in Japan and as a result its earnings are more diversified with 71% coming from its rail operations relative to main peer Central Japan Railway, where around 94% of operating profit is from rail.

We reduce our fair value estimate for JR East to JPY 9200 from JPY 9500, driven by a less positive outlook on the profitability of the transportation business in the medium term. While the company posted solid top-line growth of 3.2% year over year in the fiscal third quarter (for the fiscal year ending March 2019), operating margin fell slightly to 19.4% from 19.6% a year ago. JR East has seen margins grow over the past five years, but we think this trend is reversing. We see cost pressure in the transportation business, which accounts for 68% of revenue. More specifically, higher unit labor and business consignment costs have had a negative impact, driven by personnel shortages. Sales growth was strong across all segments, especially transportation sales, which saw 1.3% increase in the first nine months versus the same period last year. Given rising operating expenses, we have reduced our fiscal 2018 operating income to JPY 481 billion from JPY 498 previously.