The survival of the fittest
The domestic transportation sector to contract in 2009 The Korean
transportation sector is estimated to contract 4.3% in 2009, the first such
retreat since 1998 when the market declined 6.9%. Falling trade shipments
due to the global economic downturn and the domestic economic slump are
the main drag. Second-party logistics (2PL) service providers affiliated with
conglomerates have seen business grow at a CAGR of 18.4% over the recent
three years, higher than the industry average of 6.7% during the same
period, benefiting from the concentration of economic power in big
business. Now, the global economic crisis is putting a brake on their growth
momentum.
Door-to-door courier market in the spotlight Despite the bleak
prospects for the logistics industry from trucking to ocean shipping,
warehousing and stevedoring, the door-to-door courier segment is expected
to stage a comeback in 2009, led by top-tier firms. In the past, this
segment was hurt by margin erosion due to fierce competition, unable to
take advantage of the high market growth driven by online retailing (TV
home shopping and the Internet) and e-Commerce. In 2008, the market
underwent restructuring with some companies shutting down and others
closing choosing mergers and acquisitions. The future developments will
likely involve forays into international courier markets as well as alliances
and M&As.
Long-term industry realignment looms In the long haul, the domestic
logistics industry’s expansion will outpace GDP growth as trade shipments
get a boost from more FTA deals and international courier needs increase.
The industry will likely under a realignment around big business-affiliated
companies amid support from the government’s promotion of logistics
industry development and continuing infrastructure improvement.
Top pick: Glovis (BUY, fair value W65,000) Despite our conservative
view on the transportation sector, we recommend Glovis as our top pick in
the sector in light of its strongest growth potential: 1) Glovis, which
started ocean shipping of cars in 2008, will gain much of the business
becoming available due to phased expiry of the transport agreement
between Hyundai-Kia Automotive Group and Eukor Car Carriers by end-2011.
This will be a key growth driver for Glovis; and 2) Glovis’ 20-year contract
with Hyundai Steel over iron feedstock will kick off in 2010 as an added
catalyst for top-line growth and business diversification.

Contents
Investment summary
3
Investment strategy
Share price trends
7
Transportation market trends
GDP growth is a key variable for transportation market growth
11
Transportation sector margins and cost structure
Low-margin industry
Transportation industry cost structure
14
Second-party logistics market is booming
17
Major issues in transportation sector
Issue 1: Transportation sector to contract for the first time since 1998
Issue 2: Courier market undergoing consolidation
Issue 3: 3PL to take off on government support
Issue 4: Global transportation industry M&As
20
Company Analysis
Glovis (086280 KS, BUY at W65,000) – High growth stock inside and outside
Hanjin Transportation (002320 KS, BUY at W42,000) - Courier focus to blunt recession’s bite
30