Company Reports

We think Kerry Logistics Network’s, or KLN’s, 10% year-on-year increase in revenue and 11% growth in operating profit (excluding fair value change of investment) in the first half are on track to meet our full-year estimates, as we expect second-half results to grow further sequentially. We find management’s outlook encouraging. As such, we maintain KLN’s fair value estimate at HKD 10.80 per share, representing a 10.6 times 2024 price/earnings ratio. We think KLN remains undervalued at a price/earnings ratio of 7.5 times as of Aug. 28 versus above 10 times from 2015 to 2020 before the large jump in market valuation due to covid-19 logistics shortages.

The China Containerized Freight Index has been significantly higher than end-2023’s level year to date because of the Israel-Hamas war, restocking needs in the US and Europe, and bad weather in China and Southeast Asia. After factoring in higher freight rate and higher international freight forwarding revenue assumptions, we raised Kerry Logistics Network’s, or KLN’s, 2024-25 total revenue by 6%-8% and net income by 15%-37%. The earnings are growing faster than revenue due to better operating leverage. We keep our 2026-28 revenue and net profit largely intact to reflect the normalization of freight rate in outer years. Consequently, we increase our fair value estimate to HKD 10.80 per share from HKD 10.30. The shares are currently undervalued and a gradual recovery in global demand for goods will drive its share price performance, in our view.

Kerry Logistics Network’s, or KLN’s, international freight forwarding, or IFF, services accounted for 90% of consolidated segment profit in 2022 and is seeing stabilizing business conditions, in our view. Freight rates plunged in 2022 as international cargo capacity recovered from pandemic disruptions and global goods consumption weakened. We expect economic growth to pick up in the second half 2024 and IFF should return to a cyclical upcycle.

We cut Kerry Logistics Network’s, or KLN’s, fair value estimate to HKD 10.30 per share from HKD 13.20 after taking a refreshed look at our assumptions on minority interests, the share of results of associates and joint ventures, and working capital. Our new fair value estimate also considers KLN's higher net debt position in 2023, which increased to HKD 2.3 billion from net cash in 2022. We think KLN continues to be undervalued, and an eventual recovery in global demand for goods will drive its share price performance.

Kerry Logistics Network’s, or KLN’s, international freight forwarding, or IFF, services accounted for 90% of consolidated segment profit in 2022 and is seeing stabilizing business conditions, in our view. Freight rates plunged in 2022 as international cargo capacity recovered from pandemic disruptions and global goods consumption weakened. We expect economic growth to pick up in the second half 2024 and IFF should return to a cyclical upcycle.

Kerry Logistics Network reported in-line 2023 revenue but missed our estimates for consolidated segment profit and core net profit by 6% and 15%, respectively. Our 2023 estimates included contributions from the discontinued operations of loss-making Kerry Express (Thailand), or KETH, which suggests that KETH’s 2023 loss was larger than our forecast. We are pleased that KLN has distributed KETH to shareholders and will focus on its strength in international freight forwarding. Our 2024-26 earnings forecasts are largely unchanged, and we maintain our fair value estimate of HKD 13.20 per share. We continue to view no-moat KLN as undervalued.

Following the distribution of its 52.1% stake in loss-making Thailand-listed Kerry Express (Thailand), or KEX, to shareholders as special stock dividends, we have increased no-moat Kerry Logistics Network’s, or KLN’s, fair value estimate by 11% to HKD 13.20 per share.

Kerry Logistics Network’s, or KLN’s, international freight forwarding, or IFF, services accounted for 90% of consolidated segment profit in 2022 and is seeing stabilizing business conditions, in our view. Freight rates plunged in 2022 as international cargo capacity recovered from pandemic disruptions and global goods consumption weakened. We expect economic growth to pick up in the second half 2024 and IFF should return to a cyclical upcycle.

Kerry Logistics Network’s, or KLN’s, plan to distribute its 52.1% stake in Thailand-listed Kerry Express (Thailand), or KEX, to KLN shareholders is positive but largely anticipated. The date of the distribution is not finalized but we estimate it to occur in early February 2024 at the earliest. KLN had announced in July that it would dispose of its other express delivery businesses to focus on its international freight forwarding and integrated logistics businesses. We like KLN distributing its stake in KEX to shareholders as the loss-making KEX’s drag to KLN’s earnings would be removed, increasing KLN’s return on invested capital and strengthening its moat. At the moment we have a no-moat rating on KLN and this move should lift its economic profit. We are buyers of KLN given its attractive valuation. We like KLN focusing its strength in international freight forwarding, given it is the largest transpacific non-vessel operating common carrier.

After attending no-moat Kerry Logistics Network, or KLN,’s investor day, our earnings forecast is unchanged and fair value estimate remains at HKD 11.90. The shares are undervalued. We believe a potential transfer or sale of the loss-making Thailand express business to parent SF Holding, or SF, could help drive KLN’s share price toward our fair value estimate, increase return on invested capital, and strengthen KLN’s moat. Despite the Red Sea shipping disruption and drought at the Panama Canal, KLN’s management maintained the view that the worst is over and the outlook is more stable. We are encouraged to see KLN is on track in increasing its collaboration with SF, supporting our core operating profit and net gains forecast of 7% CAGR from 2023 to 2027.

We initiate wide-moat SF Holding, or SF, with a fair value estimate of CNY 54.00; narrow-moat ZTO Express with a fair value estimate of USD 14.70 per ADS and HKD 115.00 per share; no-moat Yunda Holding with a fair value estimate of CNY 10.00; no-moat YTO Express with a fair value estimate of CNY 7.80; no-moat STO Express with a fair value estimate of CNY 9.60; no-moat Kerry Logistics Network, or KLN, with a fair value estimate of HKD 11.90; and no-moat JD Logistics, or JDL, with a fair value estimate of HKD 10.70. We think SF and KLN are undervalued; Yunda, STO, and JD Logistics are fairly valued; and ZTO and YTO are overvalued.

Kerry Logistics Network’s, or KLN’s, international freight forwarding, or IFF, services accounted for 90% of consolidated segment profit in 2022 and is seeing stabilizing business conditions, in our view. Freight rates plunged in 2022 as international cargo capacity recovered from pandemic disruptions and global goods consumption weakened. We expect economic growth to pick up in the second half 2024 and IFF should return to a cyclical upcycle.