Global Supply Chain Realignment And Asset Recycling Will Drive Long-Term Logistics Upside

Catalysts

About Nippon Express Holdings

Nippon Express Holdings is a global logistics provider offering integrated forwarding, warehousing and end to end supply chain solutions.

What are the underlying business or industry changes driving this perspective?

• Acceleration of end to end, account based solutions across key industries, including technology and lifestyle, is deepening wallet share with global customers and is expected to support structurally higher logistics and forwarding revenue growth.
• Ongoing realignment of global supply chains, with new warehousing and production bases in the United States, South Asia and Oceania, positions the company to capture shifts in trade lanes and increase high value cross border volumes, which could lift revenue and gross profit.
• Expansion of warehousing and distribution services, demonstrated by the Simon Hegele consolidation and 4.7% year on year warehouse sales growth, is increasing recurring, asset backed income and may gradually improve operating margins and earnings visibility.
• Group wide cost optimization, including SG and A reduction targets, structural reforms in Europe and the second career support program, is intended to lower indirect and personnel costs and enhance operating leverage, which may support net margin and earnings as demand normalizes.
• Planned asset recycling through large scale land sales and balance sheet optimization is aimed at unlocking hidden asset value, supporting progress toward the JPY 100 billion operating profit target and improving ROE, potentially creating upside to earnings and capital return capacity.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Nippon Express Holdings's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 2.4% in 3 years time.
• Analysts expect earnings to reach ¥65.6 billion (and earnings per share of ¥282.23) by about December 2028, up from ¥25.0 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ¥96.8 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 32.5x today. This future PE is greater than the current PE for the JP Logistics industry at 13.8x.
• Analysts expect the number of shares outstanding to decline by 5.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness in global logistics demand driven by uncertainty around U.S. tariffs and cautious inventory behavior by customers could keep air and ocean forwarding volumes and pricing below expectations, suppressing revenue and limiting operating leverage.
• Structural challenges in Europe, including weak luxury apparel demand and sluggish intra European ocean freight, may persist longer than management anticipates, weighing on the Logistics overseas segment and putting sustained pressure on group business profit and net margins.
• Customer shifts to beneficial cargo owner contracts and direct shipping arrangements could become a lasting trend rather than a temporary headwind, structurally reducing forwarding volumes and unit gross profit, which would undermine long term earnings growth.
• Higher personnel expenses, start up costs for new warehouses in South Asia and Oceania, and only gradual realization of SG and A reduction and second career programs may delay cost savings, causing net margins to remain compressed even if revenue grows.
• Reliance on land sales and one off gains to bridge the gap to the JPY 100 billion operating profit target and support elevated shareholder returns exposes the company to asset market and execution risk, and if these proceeds fall short, both operating profit and net income could undershoot current expectations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ¥3714.44 for Nippon Express Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥4700.0, and the most bearish reporting a price target of just ¥2980.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be ¥2744.2 billion, earnings will come to ¥65.6 billion, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of ¥3349.0, the analyst price target of ¥3714.44 is 9.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.