Initiation of Coverage: Stable, but lacking growth drivers

Research evidence excerpt

Initiation of Coverage: Stable, but lacking growth drivers

SG Holdings UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: With Japan's parcel delivery market maturing, how fast can the delivery business

continue to grow sales?

We forecast annualised sales growth of 2.9% over FY3/26-29, below the annualised growth of 6.0%

recorded in FY3/15-20 before the COVID-19 upheavals. We expect growth in parcel volumes to

remain subdued due to slower expansion of the e-commerce market, while a rising weighting of

small-parcel shipments in the overall freight mix is likely to limit the increase in average unit prices.

Q: Can the delivery business maintain an OP margin of around 7% even in an inflationary

environment?

We believe so. Because variable costs form a significant share of the company's operating costs, the

delivery business can remain profitable even during off-peak periods when shipment volumes are

lower. Moreover, the company has internal systems that track per-parcel costs in detail, facilitating

the identification of less profitable accounts and supporting pricing negotiations with customers.

Q: Can the company reach the profit targets it has set for its two recent acquisitions?

This seems unlikely. For Meito/Hutech, improved profitability and unrealistically substantial sales

growth are required. In the forwarding business, Morrison and Expolanka are complementary due to

their strengths in different transportation modes and industry verticals. However, given the limited

overlap in their respective areas of expertise, the likelihood of generating meaningful revenue

synergies appears relatively low.