Target has a good growth profile.
Kerry Logistics (KLN) has noted that its M&A strategy on track, and that it is scheduled to acquire a new US freight forwarder soon.
According to a research note from Jefferies, KLN management stated that the acquisition of a US freight forwarder will be completed and announced in less than two months.
KLN will acquire a 51% stake of the target at a P/E multiple that is below that of KLN. The target has a good growth profile and is expected to contribute to International Freight Forwarding (IFF) earnings in 2016. Further, KLN has identified Express targets in Singapore, Philippines and Indonesia.
Here's more from Jefferies:
2015 review – successful in navigating through macro headwinds: KLN made positive progress across all segments, despite the decelerating growth in China. Core net profit achieved high single digit growth in 2015. KLN’s Thailand and Taiwan operations were strong.
However, management acknowledged that the depreciation of THB and TWD will impact consolidated result. Regarding KLN’s investment property portfolio, management does not expect to report a fair value loss due to the conservative basis for property appraisal.
2016 outlook: Management expects the Integrated Logistics (IL) operations in China will perform better in 2016. Profit margin for IFF segment will likely expand in 2016, compared with the normalized margin of 3.2% in 1H15.
The returns of the HK warehouse segment will likely be flat y/y in 2016, as contract renewal earlier which serves as a buffer to rising interest rates. The budgeted capex of US$2bn in 2016E, flat y/y, includes the purchase price of the US freight forwarder, and the Express targets in three countries.
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