1H18 results beat expectation
　　Kerry Logistics announced 1H18 results: Revenue grew 27% YoY toHK$17.4bn; net profit attributable to shareholders rose 20% YoY toHK$948mn. Excluding fair value gains, core operating profit increased19% YoY to HK$1.2bn; core net profit rose 22% YoY to HK$700mn.The firm proposed an interim DPS of HK$0.09 and special DPS ofHK$0.12, for a total of HK$0.21. The results beat our expectations,lifted by rapid growth in the logistics business in Asia.
　　Logistics: Revenue +38% to HK$8.1bn; profit +36% YoY to HK$843mn;margin -0.2ppt YoY. Regional profits: Hong Kong +23.0% YoY;mainland China -3.4% YoY; Taiwan +6.2% YoY; Asia （excluding GreaterChina） +58.4%YoY. Hong Kong warehousing: Revenue -59% YoY toHK$108mn; profit +1% YoY to HK$264mn; margin +145ppt. IFF:Revenue +22% YoY to HK$9.3bn; profit +6% YoY to HK$235mn onhigher APEX contribution. Logistics contributed 93.7% of totaloperating profit increment （Hong Kong contributed 29%; Asiacontributed 45%）。
　　Trends to watch
　　Logistics business in Asia to strengthen further in 2H. Intra-Asiatrade is becoming more active amid China-US trade frictions,boosting Kerry’s logistics business in Asia.
　　Expanding coverage and IFF businesses worldwide. New acquisitionsin South Africa and Italy, new subsidies in Pakistan, and restructuringin Europe should make up for any losses in North America.
　　Earnings forecast
　　We raise our 2018 and 2019 EPS forecasts 11.2% and 4.6% fromHK$1.29 and HK$1.44 to HK$1.44 （+15.2% YoY） and HK$1.51（+4.9%YoY） due to rapid growth of the logistics business in Asia.
　　Valuation and recommendation
　　The stock is trading at 12.3x 2018e and 11.0x 2019e core P/E. Wemaintain BUY and our HK$13.50 target price （16.5x 2018e and 14.8x2019e core P/E）， offering 34% upside.
　　Risks
　　Freight rates surge again; macroeconomic slowdown.