Kyushu Railway (9142): 2Q results: Bad news out, resilience on display

Positive: 2Q operating profit declined 26.3% YoY to ¥15.4 billion (our estimate: ¥16.2 billion, Bloomberg consensus estimate: ¥18.0 billion). Despite some adjustments across segments, full-year operating profit guidance is unchanged at ¥75.0 billion (+1.3% YoY) (our estimate: ¥71.6 billion, Bloomberg consensus estimate: ¥72.5 billion). We had expected a downward revision of around ¥3.0-5.0 billion due to the impact of the July 28 Kumamoto earthquake, so we view the unchanged guidance as positive. The earthquake appears to have reduced revenue by ¥7.5 billion, but the company expects to offset this elsewhere. Net profit guidance was revised down from ¥51.6 billion to ¥47.0 billion due to ¥9.0 billion in extraordinary losses, but DPS guidance was left at ¥121 (consolidated dividend payout ratio of at least 35% plus a policy of flexible share buybacks).