JR East Earnings: Passenger Numbers and Profits Rebound as Expected

Narrow-moat-rated East Japan Railway 9020, 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.

JR East’s postpandemic recovery is being led by the railway business, which has benefited from strong growth in passenger volumes on both the Shinkansen and conventional lines. Passenger revenue has reached about 90% of prepandemic levels, with noncommuter passenger revenue close to fully recovered. With a high proportion of fixed costs, a 12% increase in revenue drove a tripling of operating income to JPY 46 billion in the first quarter, compared with the PCP.

Other business segments are also steadily recovering. Retail revenue increased 12% on the PCP and drove a doubling of operating income to JPY 10 billion, mainly on increased sales through in-station, or “Ekinaka,” stores as passenger numbers and thus foot-traffic improved. Advertising revenue was weaker than expected and remains at half prepandemic levels, but this is a small part of the overall business.

Real estate and hotels revenue increased 12% and drove a 19% increase in operating income to JPY 20 billion. Office rents were largely flat on the PCP, while shopping center revenue benefited from stronger retail sales. The hotel business was a highlight, with operating income swinging to a JPY 1.9 billion profit from a JPY 1.5 billion loss in the PCP on higher occupancy and room rates.