Weak underling economy and competition continue to overshadow stable returns at West Japan Railway
We initiate coverage of West Japan Railway Company, or JRW, with a fair value estimate of JPY 6,600 per share. We rate JRW as no-moat as its unspectacular returns are unlikely to exceed its cost of capital. JRW’s core earnings are tied to its less affluent service territory relative to its larger peers, which leads to lower margins.While JRW’s Shinkansen (high speed bullet trains) services benefit from economies of scale, with strength from routes that serve almost half of the country’s top tou...
West Japan Railway is one of the companies that was formed upon the privatization and separation of Japanese National Railways ("JNR") in 1987. Co. operates a railway network covering 18 prefectures in western Honshu and the northern tip of Kyushu, with a total of 5,036.7 km of railway with 1,186 stations and 6,562 rolling stocks as of Mar 31 2017. Co. is engaged in the provision of "Sanyo Shinkansen" and urban network passenger transport service; the operation of convenience stores, department stores and hotels; the operation and management of shopping centers; and the provision of travel agency, advertising agency, as well as maintenance and engineering services.
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