Kerry Logistics fails to impress investors

The annual results from Kerry Logistics did little to convince stock investors that value was there for the taking in this integrated logistics and freight forwarding business.

The Hong Kong-based 3PL saw revenues rise 14% to HK$24bn (US$3.1bn), but it did not say how much of that growth was inorganic, given that last year was marked by the acquisition of US non-vessels operating common carrier Apex – which it said was in the top three US forwarders in the transpacific trade – and Spanish forwarder Bofill & Arnan.

As it continues to buy rather than build, high priority is given to the rationalisation of its assets portfolio. It is in the process of acquiring “a controlling stake of a freight forwarding group” with headquarters in Dubai and operations in the Commonwealth of Independent States (CIS), while earlier this month it “entered into a definitive agreement to divest its entire 15% interest in Asia Airfreight Terminal Company Limited.”

Its new target is engaged in rail, road and air freight businesses in nine CIS countries, it said, adding the deal is expected to close next month.

While revenue growth was significant at group level, operating profit and net income rose only 4%, reaching almost HK$1.9bn and HKD$1.1bn, respectively.

It noted that its integrated logistics (IL) unit maintained segment profit at HK$1.6bn (2015: HK$1.6bn), while the international freight forwarding (IFF) business recorded a 24% increase in profits to HK$448m (2015: HK$361m) – these figures are likely calculated before certain corporate or tax adjustments are made, given that the sum of profits by units does not correspond to the group’s total.

Notwithstanding a decline in cargo volumes, the IL division was broadly stable, generating 79% of group profits. Greater China remained a major contributor to the IL business, it noted, adding that the Hong Kong warehousing business reported slight growth despite a softening of rental levels.

“The logistics operations business in both Hong Kong and Mainland China recorded healthy segment profit growth from new business and customer wins in various sectors. Taiwan’s growth was flat.”

The growth in profitability at the IFF division, meanwhile, was propelled by the acquisition of APEX in the US and robust growth in Asia – mainly in India, Singapore and the Philippines.

e-commerce is expected to continue to be a key growth driver, with demand momentum driven by cross-border e-commerce, particularly thanks to solid trends between Greater China and the markets of south-east Asia, which are supported by its road transport network [KART: Kerry Asia Road Transport] across the region.

The full-year dividend payout ratio increased to 29% (2015: 26%). Its shares tested all-time lows at the end of 2016, but have risen 14% since 23 December.

Source: Transport Intelligence

Author: Alessandro Pasetti