www.jpmorganmarkets.comAsiaPacificEquityResearch12February2019EquityRatingsandPriceTargetsMktCapRatingPriceTargetCompanyTicker(¥bn)Price(¥)CurPrevCurEndDatePrevEndDateNipponExpress(9062)9062JT642.716,440OWn/c7,630Dec-198,350n/cSANKYU(9065)9065JT326.085,000OWn/c7,000Dec-19n/cn/cHitachiTransportSystem(9086)9086JT343.163,070OWn/c3,750Dec-193,500n/cSource:Bloomberg,J.P.Morganestimates.n/c=nochange.Allpricesasof08Feb19.Logistics:BigThree’s3QResultsUpdatePoisedForReratingOnSix-To12-MonthHorizonJapanEquityResearchTransportation,RealEstate,REITRyotaHimenoAC(81-3)6736-8639ryota.himeno@jpmorgan.comBloombergJPMARHIMENOJPMorganSecuritiesJapanCo.,Ltd.Seepage35foranalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.Amidanuncertainmarketenvironment,ourrecommendedinvestmentstrategyforthetransportsectorin2019comprises:1)a"barbellstrategy"combiningmarinetransportwithrailwaysand2)acompany-specificapproachtologistics.Ourorderofpreferenceamongsubsectorsis:railways>marinetransport>logistics>airlines.Weexpectlogisticscompaniestoseerisingprofitsasservicepricescontinuetocorrectupward,butoursharepriceoutlookistemperedby:)waningupwardmomentuminservicepricing,2)riskofslowerfreightmovementfollowingtheupcomingconsumption-taxhike,and3)apotentialreactionto2018’ssharepricegains.Thishasusadvisingacompany-specificapproachtothesubsectorandrecommendingNipponExpress,HitachiTransportSystem,andSankyu—allOverweight—asourtoppicksinviewofcompany-specificcatalystsforthefirsttwoandalonger-termgrowthstoryforthethird.NipponExpress—bullishdespitelikelydeclineinFY2019profits:Investorsareconcernedabout1)riskofaslowdownintheairfreightbusinessand2)highercostsinFY2020(“equalpayforequalwork”implementation,system...
