Japan Railways Keeping on Track with Additional Upside from Increasing Tourist Demand

The first quarter results for Japan’s three largest passenger railway companies did not contain any surprises. The shares appear slightly undervalued after we have incorporated upsides emerging from additional tourist demand for East Japan Railway, or JRE, and West Japan Railway, or JRW. During the quarter, Central Japan Railway, or JRC, announced they have completed the second leg of the JPY 3 trillion government loan package at a minimal coupon rate of 1.0% (versus the comparable market rate of 0.86%) for the next 30 years, without affecting our earnings estimates during our forecast horizon. We maintain our fair value estimates for the three companies under our coverage with no change to our narrow moat ratings with stable moat trends after the results.