No Light in the Tunnel for Japan’s Trains as Record Losses Mount
No Light in the Tunnel for Japan’s Trains as Record Losses Mount
(Bloomberg) -- Even as some of Japan’s industrial giants begin offering an improving earnings outlook, the nation’s biggest railway operators -- once havens of profit stability -- are facing a triple threat from the continuing pandemic, dwindling share prices and mounting losses.
Among the 33 sectors in the benchmark Topix Index, land transport is the sixth-worst performer, down 26% this year even as the broader index has pared losses to around 6%. Despite many industries returning to normal with the coronavirus outbreak relatively stabilized, Japan’s railway giants are falling by the wayside.
Central Japan Railway Co., operator of the money-printing bullet-train line that links Tokyo and Osaka, joined its fellow JR companies Wednesday in forecasting a loss. The 185 billion yen ($1.8 billion) in red ink will be its first operating loss since since the country’s rail network was privatized in 1987, and is more than twice the average analyst estimate. Shares of JR Central fell as much as 3.1% on Thursday morning after the projection.
And there’s little prospect for improvement in the sector, with analysts wary that the bad news is starting to stack up.
“Air and land transport will be headed into winter season without any clear path to economic recovery amid the pandemic,” said Yoshihiro Okumura, a general manager at Chibagin Asset Management. “Investors may have priced in losses, but if the losses continue it damages their assets. It’s hard to envision a profit-making scenario.”
East Japan Railway Co., whose domain includes Tokyo’s Yamanote line, reiterated its forecast for a 500 billion yen operating loss this year, after posting a 117 billion yen loss for the second quarter. Shares of the company fell as much as 3.6% on Thursday.
And as the pandemic swells abroad, further bad news looms. Other Japanese companies facing losses are being forced into radical restructuring: ANA Holdings Inc. is cutting jobs, canceling routes and said to consider selling shares, while Mitsubishi Heavy Industries Ltd. is reported to be freezing development of its years-in-the making regional jet.
West Japan Railway Co., which operates trains in Osaka and other western parts of the country, has lost over $8 billion in market value this year, and is slated to announce earnings Friday, along with a revision of a now outdated mid-term plan.
“It’s not just forecast downgrades that markets have to worry about for sectors that are expected to book losses, there’s also impairment risk,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities Co. “People just aren’t going to come back that easily.”
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