The load runners
With intra-Asia trade links developing exponentially, the market for third-party logistics (3PL) providers in the region has grown as well. Kerry Logistics Network (KLN) has leveraged this need to become a prominent logistics service provider in Greater China and Asia.
We initiate coverage on KLN with an Add rating and an SOP-based target price of HK$16. Rising trade flows may be a catalyst, especially with a cyclical upswing of the economy. We also see sustained investor appetite for logistics exposure as the e-commerce sector expands further.
Greater China and Asia specialist
Armstrong & Associates estimates 3PL revenue CAGRs of 8% for Greater China and 4.8% for Asia Pacific ex-Japan and Greater China in 2012-15. KLN has a strong foothold in these regions and is a market leader in Asia in terms of revenue. It has also benefited from growing ties between ASEAN and China via its road network, Kerry Asia Road Transport (KART). KLN counts among its clients over 40 of the Top 100 Brands ranked by Interbrand. It has serviced 52% of the customer base for its key logistics operations in Hong Kong for at least five years as at 30 June 2013.
Strength in warehousing
KLN currently manages 22.9m sq ft of storage space in Greater China and 36.3m sq ft of logistics facilities in Asia, with attributable ownership of about 16m sq ft. We believe asset ownership is viewed favourably in the sector as it encourages customers to invest in their selected facilities. This helps with customer retention, particularly in Hong Kong where industrial space is lacking. The HKTDC estimates that KLN has the fourth largest pool of private warehousing in Hong Kong.
New opportunities abound
We believe KLN will try to enhance scale, network coverage and service offerings via consolidation. With the rest of the sector also pursuing M&A strategies, this may spur an industry re-rating. Another catalyst may stem from the mounting shortage of logistics capabilities for e-commerce. While KLN’s role in online retail fulfilment does not include last mile deliveries, we see its large warehouse base as an advantage in e-commerce as logistics facilities and warehouses now have to deal with not just storage but additional considerations such as returns management and pick and pack services.
Publish date: 21/01/14