JR Central: Strong First Quarter but Strengthening Yen and Economic Risks Threaten Tourist Revenue

Narrow-moat-rated Central Japan Railway Company, or JR Central, posted a strong first quarter. Revenue increased 10% to JPY 435 billion and operating income increased 26% to JPY 184 billion compared with the same quarter last year. The firm is tracking about 20% ahead of operating income guidance for fiscal 2025 (year ending March 31, 2025) given in May 2024, mainly because of strong inbound tourism. But we see risks to earnings from recent strength in the yen and the potential for a global economic slowdown. Additionally, maintenance and other costs typically increase later in the year. We nudge our fiscal 2025 operating income forecast 4% higher to JPY 640 billion, now sitting about 5% above guidance. Our longer-term forecasts are largely unchanged and we maintain our JPY 3,400 per share fair value estimate and consider the stock marginally undervalued after recent share price weakness.