1H17 results miss expectation
　　Kerry Logistics Network announced its 1H17 results: revenuewas HK$13.7bn, up 31% YoY; net profit was HK$788mn orHK$0.46 per share, up 11% YoY, in line with estimates. Excludingfair value gains, core operating profit was HK$1bn, up 10% YoYwhile core net profit was HK$576mn, up only 5% YoY, missingexpectation. Core NP growth was mainly dragged by sluggishperformance of associates （down 52% YoY）。 The company hasdecided to pay an interim dividend of HK$0.08 per share.
　　By segment: 1） Logistics （LOP） revenue +13% to HK$5.8bnwith segment profit +11% to HK$622mn, but margin -0.2ppt.Profit of HK was up 9% YoY while Mainland China -1% YoY andTaiwan -7% YoY. Asia （excluding Greater China） grew 56% YoY.
　　2） HK warehousing revenue +3% to HK$263mn with segmentprofit +8% to HK$262mn and margin +4.6ppt. 3） IFF revenueincreased 51% to HK$7.6bn and segment profit increased 7% toHK$222mn mainly driven by contribution from APEX.
　　Trends to watch
　　We expect a better 2H: 1） freight rates are stabilizing and costpressure is being passed on to customers; 2） 2Q sawimprovement.
　　Disposing of non-core assets: the group will divest its entire15% interest in Asia Airfreight Terminal Company. Conditionsprecedent of the transaction will be satisfied in 3Q17.
　　Earnings forecast
　　Considering higher-than-expected fair value gains, wemaintain our earnings forecast but cut our 2017 core netprofit growth forecast from 11.6% YoY to 8.1% YoY.
　　Valuation and recommendation
　　The stock is trading at 15.8x 2017e core net profit. Wemaintain our BUY rating and HK$13.50 target price,implying 20.97% upside room from the current price.
　　Risks: Freight rates surge again; macroeconomic slowdown.