2018 results in line with expectation
Kerry Logistics Network （KLN） announced 2018 results, in line withour expectation. Revenue rose 24% YoY to HK$38.1bn （vs 27% YoY in1H）。 Core net profit rose 12% YoY to HK$1.3bn （vs 22% YoY in 1H）。Attributable net profit rose 15% YoY to HK$2.4bn （vs 20% YoY in 1H）。KLN announced it would pay an ordinary dividend of HK$0.25 pershare （implying 32% payout rate for core net profit）， and a specialdividend of HK$0.12per share, totaling HK$0.37 per share.
By segment: Logistics （LOP） revenue rose 26%YoY to HK$16.5bn withsegment profit up 19% YoY to HK$1.6bn （vs +36% YoY in 1H） andmargin up 9.4ppt. Profit rose 13% YoY in HK, fell 11% YoY in mainlandChina （mainly due to reduced export volume in China）， rose 4% YoY inTaiwan, and rose 37% YoY in Asia （excluding Greater China）。 HKwarehousing revenue fell 30% YoY to HK$341mn with segment profitup 3% YoY to HK$560mn （vs +1% YoY in 1H） and margin rising 1.5ppt,implying improving operating efficiency. IFF revenue rose 24% YoY toHK$21.3bn and segment profit rose 7% YoY to HK$549mn. By region:
Asia and Hong Kong made up 63% and 41% of the total profit rise.
Trends to watch
We are upbeat on earnings growth in 2019. The logistics business inthe mainland should improve significantly as it expands projectlogistics and focuses on imports. The disposal of two warehouses inHong Kong should be completed in 2019 and KLN will probably recordthe HK$2bn in one-off gains （pre-tax）， boosting results. We expect itto expand business coverage worldwide.
Earnings forecast
We raise our 2019 EPS forecast 3% from HK$1.51 to 1.55 （+8% YoY,core NP +11% YoY） due to a more positive outlook in the mainland.We introduce a 2020 EPS forecasts at HK$1.72 （+11 YoY, core NP+11% YoY）。
Valuation and recommendation
The stock trades at 9x 2019e （or 15x 2019e core P/E）。 We maintainBUY and raise our TP 5% to HK$15.75 （18x 2019e core P/E）， offering19% upside.
Risks
Freight rates surge again; macroeconomic slowdown.