Railroad sector
SECTOR REVIEW
Maintain OUTPERFORM rating for Tokyu
■ Revise forecasts, TPs and ratings: We revise our forecasts (and add
those for FY3/12), TPs and ratings following FY3/09 results for the eight
major private railway companies. Changes to each company are as follows:
Tobu Railway (9001): UNDERPERFORM, TP ¥360 (from ¥350)
Tokyu (9005): OUTPERFORM, TP ¥500 (from ¥550)
Keihin Electric Express Railway (9006): UNDERPERFORM, TP ¥400 (from ¥440)
Odakyu Electric Railway (9007): UNDERPERFORM, TP ¥380 (from ¥460)
Keio (9008): UNDERPERFORM (from Neutral), TP ¥430 (from ¥510)
Nishi-Nippon Railroad (9031): NEUTRAL (from Outperform), TP ¥340 (from ¥460)
Kintetsu (9041): UNDERPERFORM, TP ¥230 (from ¥260)
Hankyu Hanshin Hldgs (9042): NEUTRAL (from Outperform), TP ¥450 (from ¥520)
■ Maintain OUTPERFORM rating for Tokyu: Tokyu targets an OP decline
for the second consecutive year in FY3/10, but this is more a reflection of its
medium-term business plan. We maintain that the key investment factor for
the stock is the earnings outlook from FY3/12, when major projects are
scheduled for completion. One of its four major projects is the Futako
Tamagawa redevelopment project. This project includes the sale of condos
(Futako Tamagawa Rise Tower Residence), and so far application and
contract rates for those condos that have gone on sale are running at
70-80%, a strong performance when the current market environment is
considered. The shares have rebounded from the historical low of around
¥350, but still below the theoretical price yielded by our residual income
model. This suggests to us potential earnings strength following completion
of these projects has yet to be fully reflected in the share price.
■ Downgrade Keio to UNDERPERFORM: The stocks we rate
UNDERPERFORM are principally those with a shareholder base weighted
toward individual investors, while their share prices can hardly be justified by
their fundamentals. Although we rate Tobu Railway, Keihin Electric Express
Railway (Keikyu), Odakyu Electric Railway and Kintetsu UNDERPERFORM,
they could still outperform during a bear market. Keio is an exception among
companies we rate UNDERPERFORM in terms of its shareholding structure.
We believe Keio’s stock is over-accumulated during a period of flight to
defensives.
Table of contents
Investment overview 3
FY3/09 results 3
FY3/10 management target 5
Stock performance 6
Individual companies
Tobu Railway (9001 / 9001 JP) 7
Steep road to achieving profit targets 7
Tokyu (9005 / 9005 JP) 10
Sales of “Futako Tamagawa Rise” firm 10
Keihin Electric Express Railway (9006 / 9006 JP) 13
Targets profit declines for all segments 13
Odakyu Electric Railway (9007 / 9007 JP) 16
Somewhat bullish targets 16
Keio (9008 / 9008 JP) 19
Rising costs a heavy burden, but steady approach is key 19
Nishi-Nippon Railroad (9031 / 9031 JP) 22
Continuing misfortune 22
Kintetsu Corporation (9041 / 9041 JP) 25
Railway through service firm, other divisions uncertain 25
Hankyu Hanshin Holdings Inc (9042 / 9042 JP) 28
Downgrade to NEUTRAL 28