On Monday, Goldman Sachs (NYSE:GS) initiated coverage of Tokyo Metro (TSX:MRU) Co Ltd (9023:JP), assigning a Buy rating and setting a price target of JPY2,200. The new rating anticipates a total shareholder return (TSR) of 29%, which is notably higher than the 19% average for the firm's coverage of Japan Railways.
Tokyo Metro, which is primarily focused on transportation services, was reported to have generated 84% of its operating income from this sector in the fiscal year ending March 2024. The company's network is critical to the Tokyo area and its neighboring prefectures, where 30% of Japan's population resides. Analysts at Goldman Sachs project that the transportation business will recover to 90-93% of the passenger levels seen before the pandemic by the fiscal years 2025 to 2027.
The expected rebound is attributed to several factors: Tokyo Metro's dominant share of 39% in passenger traffic among private railway companies, a trend of workers returning to offices, population growth around the Tokyo area, and a significant increase in tourism in 2023 compared to 2019.
In addition to transportation, Tokyo Metro is involved in real estate, which accounted for 6% of operating income, as well as retail-related, advertising, and IT businesses along its rail lines, contributing another 10% in the same period. These sectors are also expected to see growth in the fiscal years 2025 to 2027, driven by falling vacancy rates, rising railway usage, and increased advertising spend by companies.
Goldman Sachs' positive outlook for Tokyo Metro is based on a combination of the company's strong position in the transportation sector and the anticipated growth in its ancillary businesses. The firm's analysis suggests that Tokyo Metro is well-positioned to capitalize on the increasing demand for transportation and commercial activities in the Tokyo metropolitan area.
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