Investment positives
　　KLN is Asia’s premier logistics service provider.
　　Forty of the world’s top 100 brands use KLN. Logisticsoperations, HK warehousing and international freight forwarding（IFF） contribute 56%, 26% and 18% of total core operatingprofit. Operating profit comes mostly from HK （36%）， China（22%）， Taiwan （20%） and South & SE Asia （17%）。
　　N is for network. KLN operates a wide and mature logisticnetwork in Asia, larger than competitors like DHL and Sinotrans,and can benefit from regional economic vitality. Greater Chinaand South & SE Asia will play more important roles in worldconsumption and manufacturing, if their large populations andongoing urbanization are any indicator. Intra-Asia trade will keepgrowing rapidly as China continues to outsource manufacturingto ASEAN countries and intra-Asian tariffs decline. Boomingcross-border e-commerce in China and South & SE Asia will drivethe logistics and express business.
　　Brilliant management. 1） OP margin expansion over the pastfive years, both for the whole company and individual business lines.
　　2） Success in past M&A and improving acquired assets’ profitability.
　　Large potential for asset appreciation. A KLN warehouse onHK Island is to be converted into a columbarium, enhancing netasset value by HK$9.1bn, or half of current market cap.
　　Financials
　　We expect core earnings （excl. fair value gains from investmentproperties） to grow 8.5% in 2016, 10.7% in 2017, 11.3% in2018. Surprise may come from more M&A and the columbarium.
　　Valuation and recommendation
　　KLN is now 15.7x 2016e P/E （adjusted recurring EPS excludingfair value gains from investment properties）， much cheaper thanits IPO P/E of 19.1x in 2013 and logistics companies’ 20.5x. Weinitiate with BUY and a DCF-based TP of HK$13.50, or20x 2016e P/E.
　　Risks
　　Macro economy slowdown.