2017 results beat expectations
Kerry Logistics Network announced its 2017 results: revenue was up28% YoY to HK$31bn and net profit was up 12.7% YoY to HK$2.1bn. In2H17, revenue was up 26% YoY to HK$17bn and net profit was up14% YoY to HK$1.3bn. Core recurrent profit was up 5% YoY toHK$993mn. Excluding fair value gains, core net profit was HK$1.2bn（+7% YoY）。
Integrated logistics: logistics operation profit is HK$1.3bn （+15%YoYvs. 2016’s +1%）， mainly driven by the express business in Thailand,with operating margin -0.6ppt. Hong Kong warehousing operatingprofit is HK$545mn （+5% vs. 2016’s +2%） with margin +15ppt. In2H17, revenue was up 27% YoY to HK$7.5bn and operating profit wasup 13% YoY to HK$962mn.
International freight forwarding: operating profit is HK$511mn（+14% vs. 2016’s +24%）， mainly driven by the sound performance ofAPEX in the Americas. In 2017, IFF segment generated 22% of thetotal profit.
Trends to watch
Asia drivers still strong: rapid growth in Asia, driven by thee-commerce boom and margin expansion on the back of bettereconomies of scale from expected rapid volume growth. Factoryactivity was particularly strong in mainland China, Taiwan and India,with surges in new orders and output.
Expansion of logistics assets will release potential: four logisticsfacilities are under construction （Changsha & Wuhan in MainlandChina; Guanyin in Taiwan; and Bangna in Thailand）。 In 2018, twoother expansion projects will be completed in Thailand and Myanmar.
Earnings forecast
We maintain our earnings forecasts for 2018/19.
Valuation and recommendation
The stock is trading at 8.2x/7.4x 2018e/2019e P/E. We maintain ourBUY rating and HK$13.50 target price, implying 27% upside room.
Risks
Macroeconomic slowdown.