JRW’s Results Reveal its Outsize Ambition to Diversify, Maintaining FVE at JPY 7,200

West Japan Railway's, or JRW’s, fiscal 2016 result was in line, with net profit increasing 6.3% year over year to JPY 91.2 billion on net revenue falling 0.7% year over year for the first time in seven years. For the year ended March 2017, the mainstay railway operations reported no growth due to declining rural population, underperforming underlying domestic demand growing by 0.5%. We continue to have structural concerns over JRW's larger service territory in rural areas as the company expects to charge more abolition charges in loss-making railway routes. The latest charge for the year ended reached JPY 11.4 billion, above our annual average forecast of JPY 5 billion. Management forecasts fiscal 2017 results to improve strongly with net profits increasing by 17.2% year on year, and with net revenue increasing by 3.5% year on year. Its strong bottom line improvement forecasts largely relate to: (1) a sequential rebound from the Kumamoto earthquake; and (2) management’s rather optimistic assessment on its new property development subsidiary, acquired in cash for JPY 97 billion.