JRE's Business Transformation Takes Shape but OPEX Pressure Lingers; FVE Raised to JPY 9,500

East Japan Railway, or JRE, is Japan’s largest railway network operator running both long distance bullet trains (shinkansen) and shorter municipal train routes around and from the Greater Tokyo metropolitan area. JRE has been able to extract additional value to its regulated train transportation returns through redeveloping its stations into mixed commercial centers, with the most significant being Tokyo Station. We think being in Tokyo enables the company to garner attractive commercial rental returns above its peers in Japan and as a result its earnings are more diversified with 71% coming from its rail operations relative to main peer Central Japan Railway, where around 94% of operating profit is from rail.