2019 of core profits meet our expectations
Kerry Logistics reported 2019 results: revenue rose 8 per cent year-on-year to HK $41.1 billion (+ 27 per cent in the first half) and core net profit rose 4 per cent to HK $1.4 billion (+ 22 per cent in the first half), in line with our expectations. Homing net profit rose 55 per cent year-on-year to HK $3.8 billion (+ 20 per cent in the first half). The overall performance was lower than we expected, mainly because non-core real estate fair value income decreased by HK $600 million compared with the same period last year. The company pays an ordinary dividend of HK $0.18 per share at the end of the period. excluding the special dividend, the annual dividend is 34%, up from 32% in 2018.
Core business segment: 1) Integrated logistics business (LOP) revenue rose 16 per cent year-on-year to HK $19.2 billion; profit rose 22 per cent year-on-year to HK $1.9 billion (+ 6 per cent in the first half).
Of this total, Hong Kong grew 23 per cent year-on-year (mainly due to a diversified business portfolio and new customers in catering, pharmaceutical and integrated services industries); the mainland grew 22 per cent year-on-year (thanks to customer mining and improved ground transportation network); Taiwan grew 19 per cent year-on-year (thanks to the return of semiconductor manufacturing from the mainland to Taiwan); Asia (excluding Greater China) grew 22 per cent year-on-year (Thailand had the highest growth rate). 2) Hong Kong warehouse business (HKW) revenue fell 21 per cent year-on-year to HK $268 million; profit fell 3 per cent year-on-year to HK $541 million (+ 2 per cent in the first half) due to the sale of two local warehouses in June. 3) International freight forwarding business (IFF) revenue rose 2 per cent year-on-year to HK $21.6 billion; profit rose 13 per cent year-on-year to HK $622 million (+ 22 per cent in the first half).
Trend of development
Looking forward to 2020. 1) the epidemic has affected the international trade environment, and the international freight forwarding business may be affected, but the impact of the mainland and other mainland logistics business is relatively small. 2) Kerry Express Thailand's IPO application has been submitted to the Thai Stock Exchange, and the listing is expected to be delayed due to the impact of the epidemic.
The remaining 49 per cent stake in subsidiary Apex US was completed on March 31, with a consideration of $176 million in the form of 30 per cent cash plus 70 per cent issuance of new shares. Apex US is the second largest non-vessel carrier to and from Asia and America, with a net profit of $26.17 million before tax in 2019, and we believe that the company's performance will continue to be strengthened after the acquisition.
Profit forecast and valuation
Based on the impact of the epidemic, new acquisitions and expected changes in land prices in Hong Kong, the 2020 profit was reduced by 21% to HK $2.246 billion (- 41%YoY), and the 2021 profit was introduced by HK $2.57 billion (+ 14%YoY). The current share price corresponds to a price-to-earnings ratio of 7.3 times 2021 / 6.4 times earnings. With a core P / E ratio of 9.4 / 8.4. Maintain the outperform industry rating, but due to earnings adjustment and changes in market risk appetite, cut the target price of 20.0% to 12.60 Hong Kong dollars corresponding to 9.6 times / 8.4 times 2020 prime 2021 price-to-earnings ratio, with 31% upside from the current share price.
Risk
The regional economy is slowing down; the progress of business expansion is not as expected.