Company Reports

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.

Narrow-moat-rated JR Central recovered strongly, with operating income in the year to March 31, 2024 (fiscal 2024) rising 62% to JPY 607 billion, beating our expectations by 13%. The good result was mainly driven by the transport segment. Management guides to flat earnings in fiscal 2025, with operating income of about JPY 608 billion as further revenue growth is offset by higher wages and other costs. We leave our medium-term forecasts largely unchanged but our longer-term forecasts rise as we factor in significant delays to the opening of the Chuo magnetic levitation shinkansen. We expect earnings to fall when the Chuo opens because of a duplication of costs without commensurate revenue growth due to partial cannibalization of the Tokaido Shinkansen.

Central Japan Railway Company, or JR Central, is the main railway operator in Nagoya and the Chubu region in central Japan. It serves far fewer passengers than JR East but what JR Central lacks in scale, it makes up for with quality, owning Japan's premier high-speed rail line—the Tokaido Shinkansen. The Tokaido Shinkansen dominates passenger transport along its route, which spans Japan's most wealthy and populous area and links Tokyo, Yokohama, Nagoya, Kyoto, and Osaka. Competition is minimal given the Shinkansen's unbeatable departure frequency, convenience, travel times, safety, and reliability.

Central Japan Railway Company, or JR Central, upgraded EBIT guidance for the year ending Mar. 31, 2024, by 7% to JPY 506 billion following a robust December quarter. The upgrade stems from a faster-than-expected recovery in domestic and inbound tourist passenger demand following the pandemic. We upgrade our near-term forecasts in line with guidance while leaving longer-term expectations largely unchanged. We maintain our JPY 3,400 per share fair value estimate and consider the stock fairly valued at current prices.

Central Japan Railway Company, or JR Central, is the main railway operator in Nagoya and the Chubu region in central Japan. It serves far fewer passengers than JR East but what JR Central lacks in scale, it makes up for with quality, owning Japan's premier high-speed rail line—the Tokaido Shinkansen. The Tokaido Shinkansen dominates passenger transport along its route, which spans Japan's most wealthy and populous area and links Tokyo, Yokohama, Nagoya, Kyoto, and Osaka. Competition is minimal given the Shinkansen's unbeatable departure frequency, convenience, travel times, safety, and reliability.

Central Japan Railway Company, or JR Central, is the main railway operator in Nagoya and the Chubu region in central Japan. It serves far fewer passengers than JR East but what JR Central lacks in scale, it makes up for with quality, owning Japan's premier high-speed rail line—the Tokaido Shinkansen. The Tokaido Shinkansen dominates passenger transport along its route, which spans Japan's most wealthy and populous area and links Tokyo, Yokohama, Nagoya, Kyoto, and Osaka. Competition is minimal given the Shinkansen's unbeatable departure frequency, convenience, travel times, safety, and reliability.

Narrow-moat-rated JR Central had a strong first-half fiscal 2024 as passenger numbers bounced back, beating management's expectations and our own. First-half operating income, or EBIT, jumped 82% to JPY 312 billion, leading management to upgrade full-year guidance by 17% to JPY 502 million on stronger-than-expected passenger demand and lower-than-expected fuel costs. We upgrade our fair value estimate 6% to JPY 3,400 per share after upgrading our earnings forecasts. At current prices, the stock screens as fairly valued.

We initiate research coverage of Central Japan Railway Company, or JR Central, with a fair value estimate of JPY 16,000 per share, based on a weighted average cost of capital of 4.5%. While owning high-quality infrastructure, we think it is overvalued, trading about 20% above our valuation. Forward valuation metrics are undemanding, with a P/E ratio of 15 and an enterprise value/EBITDA multiple of 9. But we think returns on invested capital are destined to fall when the Chuo magnetic levitation Shinkansen starts operating late this decade, even if this costly project is delivered on time and budget. The forecast dividend yield is 0.7% because of a very low dividend payout ratio of about 10% as the firm retains earnings to pay for the new Shinkansen.

Central Japan Railway Company, or JR Central, is the main railway operator in Nagoya and the Chubu region in central Japan. It serves far fewer passengers than JR East but what JR Central lacks in scale, it makes up for with quality, owning Japan's premier high-speed rail line—the Tokaido Shinkansen. The Tokaido Shinkansen dominates passenger transport along its route, which spans Japan's most wealthy and populous area and links Tokyo, Yokohama, Nagoya, Kyoto, and Osaka. Competition is minimal given the Shinkansen's unbeatable departure frequency, convenience, travel times, safety, and reliability.

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

Central Japan Railway, or JRC, is the country's second-largest railway network operator, deriving 94% of its operating profit from the rail business. Merchandise and real estate accounts for the balance. The rail segment’s high profitability is primarily driven by the Tokaido Shinkansen, which connects Tokyo to Osaka via Nagoya and has historically garnered superior margins to Shinkansen lines operated by peers. Commuters traveling to Nagoya or Osaka from Tokyo prefer Shinkansen to airlines due to significantly higher frequency of daily departures, comparable travel time, and the safety and reliability offered by the former. As a result, JRC boasts a 100% and 86% market share (versus airlines) for the Tokyo-Nagoya and Tokyo-Osaka routes, respectively.

Central Japan Railway, or JRC, saw third quarter (for financial year ending March 2020) operating income growth decelerate to negative 0.8% year on year versus 5.8% due to a slowdown in top-line growth to 0.6% from 3.1% in the same period a year ago. JRC’s weak fiscal third-quarter results are in line with our expectations given the slowing economy in the fourth quarter and weaker consumer spending.

Central Japan Railway, or JRC, is the country's second-largest railway network operator, deriving 94% of its operating profit from the rail business. Merchandise and real estate accounts for the balance. The rail segment’s high profitability is primarily driven by the Tokaido Shinkansen, which connects Tokyo to Osaka via Nagoya and has historically garnered superior margins to Shinkansen lines operated by peers. Commuters traveling to Nagoya or Osaka from Tokyo prefer Shinkansen to airlines due to significantly higher frequency of daily departures, comparable travel time, and the safety and reliability offered by the former. As a result, JRC boasts a 100% and 86% market share (versus airlines) for the Tokyo-Nagoya and Tokyo-Osaka routes, respectively.

Central Japan Railway, or JRC, posted strong second-quarter results, prompting management to raise its fiscal 2020 guidance for revenue growth and operating margin upwards. With the performance also above our expectations, we tweak our assumptions to reflect a more bullish outlook for the remainder of the fiscal year, but these adjustments have limited impact to our fair value estimate. We maintain our fair value estimate for narrow-moat-rated JRC at JPY 24,000 per share. JRC’s share price has recovered almost 4% since the release of its first-quarter results in late July, and while shares are trading at a slight discount to our fair value estimate, we think investors should wait for a larger margin of safety before building a position in the name.

We maintain our fair value estimate for narrow-moat Central Japan Railway, or JRC, at JPY 24,000. We consider JRC fairly valued at current levels and think investors should wait for a better entry point. Despite a strong start to the fiscal year, we think near-term headwinds such as the impending consumption tax hike in October 2019, effects from the US-China tariff war, and Japan’s export restrictions to South Korea, would lead to a slowdown in sales growth in future.

We maintain our fair value estimate for narrow-moat Central Japan Railway, or JRC, at JPY 24,000. For the company’s fiscal year ending March 2019, revenue and operating income came in above our forecasts, driven by strong commuter volume growth on the Tokaido-Shinkansen line, and the solid results of its real estate and merchandise businesses. We remain optimistic over the long-term outlook of the its core transportation segment, which is primarily led by the Tokaido-Shinkansen line connecting Tokyo, Osaka and Nagoya, and drives 94% of JRC’s operating profit. However, we forecast a slowdown in revenue growth during fiscal 2020 given management expectations that demand will slow, and we think this will be driven partly by the consumption tax hike slated for October 2019. This is in line with what happened after the previous consumption tax hike in April 2014. In addition, gross margins may pull back on the back of increased depreciation. This nonetheless has a limited effect on our fair value estimate, with little change to our free cash flow projections. We think JRC is fairly valued, given its current risk versus rewards potential.

Central Japan Railway, or JRC, is the country's second-largest railway network operator, deriving 94% of its operating profit from the rail business. Merchandise and real estate accounts for the balance. The rail segment’s high profitability is primarily driven by the Tokaido Shinkansen, which connects Tokyo to Osaka via Nagoya and has historically garnered superior margins to Shinkansen lines operated by peers. Commuters traveling to Nagoya or Osaka from Tokyo prefer Shinkansen to airlines due to significantly higher frequency of daily departures, comparable travel time, and the safety and reliability offered by the former. As a result, JRC boasts a 100% and 86% market share (versus airlines) for the Tokyo-Nagoya and Tokyo-Osaka routes, respectively.

We raise our fair value estimate for narrow-moat-rated Central Japan Railway to JPY 24,000 per share from JPY 20,500, underpinned by our increased conviction in the long-term growth outlook for the Tokaido Shinkansen. Continuing its strong fiscal first-half momentum, JRC’s third quarter (for the fiscal year ending March 2019) showed solid performance, with revenue up 3.1% year over year on robust transportation revenue growth of 3.2% and overall operating margin continuing its improvement over the year-ago level on better operating leverage. The merchandise business, which accounts for 14% of sales, also posted healthy growth of 4.8%, driven by mid-single digit sales growth at JR Nagoya Takashimaya and Gate Tower Mall. We believe management’s full-year forecast of JPY 1,443 billion for the transportation segment, which accounts for 78% of overall revenue, is conservative, as the segment’s revenue growth in the first nine months of fiscal 2019 is trending above guidance and monthly passenger volume remains robust. We have adjusted the segment’s full-year revenue growth to 2.2% versus 1.3% previously and overall operating income to JPY 693 billion versus JPY 671 billion previously.

Central Japan Railway, or JRC, is the country's second-largest railway network operator, deriving 94% of its operating profit from the rail business. Merchandise and real estate accounts for the balance. The rail segment’s high profitability is primarily driven by the Tokaido Shinkansen, which connects Tokyo to Osaka via Nagoya and has historically garnered superior margins to Shinkansen lines operated by peers. Commuters travelling to Nagoya or Osaka from Tokyo prefer Shinkansen to airlines due to significantly higher frequency of daily departures, comparable travel time, and the safety and reliability offered by the former. As a result, JRC boasts a 100% and 86% market share (versus airlines) for the Tokyo-Nagoya and Tokyo-Osaka routes, respectively.

Central Japan Railway, or JRC is the second-largest railway network operator deriving 94% of its operating profit from the rail business. Merchandise and real estate accounts for the balance. The rail segment’s high profitability is primarily driven by the Tokaido Shinkansen, which connects Tokyo to Osaka via Nagoya and has historically garnered superior margins to Shinkansen lines operated by its peers. Commuters travelling to Nagoya or Osaka from Tokyo have preferred Shinkansen to airlines due to significantly higher frequency of daily departures, comparable travel time, and the safety and reliability offered by the former. As a result, JRC boasts a 100% and 86% market share (versus airlines) for the Tokyo-Nagoya and Tokyo-Osaka routes, respectively.