Kerry Logistics 1H14 net income drops 30% to HK$634mn

Management continues to seek investment opportunities globally.

Kerry Logistics Network's (KLN) 1H14 net income came in at HK$634mn, -30% y/y and -32% h/h, and constitutes 57% of Barclays’ FY14E estimates for a net income of HK$1,110mn.

According to a research note from Barclays, 1H14 revenue growth of +5% y/y was largely in line with Barclays’ expectations with the y/y decline in net income driven by a lower valuation gain on investment properties and lower profit contribution from its Chiwan Container Terminal and Asia Airfreight Terminal.

Excluding the effect of property revaluation, 1H14 operating profit before fair value change was HK$811mn, +13% y/y and -26% h/h. KLN declared an interim dividend of 6 Hong Kong cents per share, which implies an annualized yield of 1%.

 Here’s more from Barclays:

Segment profit margin remained solid: Integrated Logistics (IL), which contributed 80% of segment profit, registered a 11% y/y growth in turnover and 14% y/y growth in operating profit in 1H14 on the back of expansion in Greater China and ASEAN.

International Freight Forwarding (IFF), which contributed 20% of segment profit, saw 1H14 revenue +3% y/y and profit +8% y/y thanks to the continued expansion of its IFF network.

Profit margins for all segments held steady compared with last year.

Outlook for 2H14: Overall, management’s strategy in the outlook statement was unchanged as compared with March 2014 at its annual results briefing, namely that it would continue to seek investment opportunities globally for both its IFF and IL segments supported by the proceeds from its December 2013 listing.

KLN incurred HK$793mn in capex in 1H14, -33% y/y. Management guided for FY14E capex to be 8-10% of revenue, which would be HK$1,760mn to HK$2,200mn based on our FY14E revenue forecast.

In addition to the new projects listed below, KLN also expects to consummate more M&A investments in 2H14.

Kerry Zhengzhou Logistics Centre with a total area of 366,000 sq ft will commence operations in 2H14 to provide logistics services for electronics, auto parts and fashion industries.

New logistics Centre in Chengdu covering 592,000 sq ft and expected to be competed in 1Q15.

New Xian facility covering 273,000 sq ft which will begin construction in 4Q14.