Performance exceeded expectations, the company introduced strategic investment to bring new development opportunities Kerry Logistics released its 2020 results: 1) operating revenue of HK $53.4 billion, an increase of 29.7% over the same period last year. 2) the core homing net profit increased significantly by 33.1% year-on-year to HK $1.8 billion (excluding one-time and non-operating items), 7.5% higher than we expected. The strong performance is mainly driven by the substantial growth of the company's international freight forwarding business and the rapid growth of the e-commerce market. On February 10, Kerry Logistics announced that it had been partially offered for acquisition, and the offeror planned to acquire 51.8% of the company. We believe that the introduction of strategic investment will promote Kerry Logistics to enter a new stage of growth. According to the transaction announcement, we raised the target price by 76.2% to HK $26.08, based on the cash offer price of HK $18.80 per share plus a special dividend of HK $7.28 per share, and downgraded to "overweight". 202112022Universe 2023 predicts EPS 1.79Universe 2.01Universe 2.21 Hong Kong dollars.
Demonstrate the company's business resilience during the epidemic crisis
Affected by the COVID-19 epidemic, the global supply chain is facing severe challenges. Kerry Logistics demonstrated strong business resilience and operational management capabilities during the epidemic crisis. The integrated logistics business of Kerry Logistics achieved a segment profit of HK $2.6 billion in 2020, an increase of 6.0% over the same period last year, mainly driven by strong business in Hong Kong and Taiwan. Although the general consumption, food and beverage industries have been adversely affected by the epidemic, the demand for logistics and online retail related to epidemic prevention products has increased significantly.
The company is highly competitive. In 2020, the international freight forwarding business of Kerry Logistics realized a segment profit of 1 billion Hong Kong dollars, a substantial increase of 63.5% over the same period last year, mainly driven by the strong demand for epidemic-related commodities and China's strong exports. The epidemic has led to global supply chain disturbances, especially significant fluctuations in the international freight forwarder market. The company shows strong competitiveness in terms of freight rate, capacity and equipment, and obtains favorable conditions during the epidemic. Kerry Apex cargo volume grew 17% year-on-year in 2020, ranking second among non-vessel carriers from Asia to North America in 2020.
Strategic investment drives new growth space
The offeror is the leading integrated express logistics service provider in mainland China, with the largest cargo aircraft fleet in China and leading IT technology for supply chain management. We believe that the offeror's strategic investment will bring new growth space for Kerry Logistics. Kerry Logistics will continue to expand its international business with the support of the offeror. So far, the transaction has not met the prerequisites, and the final deadline for meeting the prerequisites is August 9. Our target price of HK $26.08 is based on the proposed offer price of this transaction plus a special dividend; considering that the latest share price of the company partly reflects the event since the disclosure of the transaction on February 10, we downgrade it to "overweight". Our latest profit forecast has not taken into account the impact of the divestment of the Hong Kong warehouse and Taiwan business if the transaction is completed.
Risk tips: 1) the tender offer failed; 2) the impact of the COVID-19 epidemic lasted longer than expected; 3) economic growth was lower than expected.