In 2024, it has become an inevitable choice for express logistics companies to accelerate the process of internationalization. Kerry Logistics (00636) took advantage of the trend to accelerate the pace of "going global".
According to the Zhitong Finance app, Kerry Logistics recently announced that it has entered into an agreement with SF Multimodal Transport, a subsidiary of SF Holdings, to acquire a 70% stake in Alashankou International Express Railway, which is expected to help unleash the value of Kerry Logistics' multimodal transport services in the international freight forwarding business.
Citi had expected any acquisitions to expand its international freight business, as well as the success of narrowing losses in its e-commerce and express businesses, to be key catalysts going forward.
On January 5, the company rose more than 16% to HK$9.15 at the close, with a turnover of HK$29.2617 million.
International freight forwarding has added another boost to seize the blue ocean of cross-border logistics track growth
Kerry Logistics is an Asia-based international third-party logistics service provider with core businesses including integrated logistics and international freight forwarding. Throughout its history, Kerry Logistics started as a warehouse business, with the expansion of its international freight forwarding business at various stages along the inter-regional trade transfer, while its logistics operations focused on the construction of continuous logistics facilities in Asia.
In terms of business, Kerry Logistics' revenue is mainly derived from integrated logistics business and international freight forwarding. In order to accelerate the pace of development, Kerry Logistics has concentrated its resources on its core business through "slimming".
Specifically, in July, the company announced the transfer of certain companies engaged in express delivery services in the Asia-Pacific region and Europe to SF Holdings, and transferred them to SF Express, so as to concentrate its resources on integrated logistics and international freight forwarding business.
On the other hand, the company has increased its international freight business through expansion.
According to public information, the acquisition of Alashankou International Express Rail is mainly optimistic about the development of Alashankou Port, which has great potential, as well as the existing train and cross-border land transportation products of Alashan International Express, which can achieve full-link synergy with Kerry Logistics' cross-border multimodal transport business, and further promote the high-quality and sustainable development of Kerry Logistics on the most convenient land route from China to Central Asia and even Europe.
In fact, with the popularity of cross-border e-commerce, logistics, as an important supporting industry, has seen its demand skyrocket. However, international logistics costs are high, generally accounting for 20%~30% of the cost of cross-border e-commerce, and data shows that the cross-border logistics market will reach 2.36 trillion yuan in 2022, a year-on-year increase of 10.8%.
In addition to the huge market demand, policies are also constantly increasing to support the construction and development of the international logistics supply chain. The "14th Five-Year Plan for the Development of the Postal Industry" clearly points out that to develop international mail and logistics, one is to expand the layout of overseas services, and the other is to enhance cross-border service capabilities.
Driven by the market and policies, it is still expected for Chinese enterprises to increase their penetration rate in overseas markets by virtue of their cost-effective product advantages. In the future, Shein, TikTok Shop and other GMV are expected to grow steadily, and the recent entry of AliExpress Select (Choice) and low-price platform Temu (Pinduoduo) is expected to stimulate new demand in the traditional European and American markets, and the development of emerging markets is superimposed, and the agency estimates that the CAGR of the cross-border e-commerce B2C export market is still expected to reach 15.1% from 2023 to 202525.
The orders of leading e-commerce platforms and independent stations are increasingly concentrated in integrated logistics service providers with more competitive advantages, and the integrated supply chain service capabilities and stability of core logistics leaders may be the key to success. According to the forecast, the market size of cross-border logistics will further expand to 2.52 trillion yuan in 2023, and the vitality and potential of the industry are being released at an accelerated pace. CITIC Securities is expected to emerge in the next three years with a revenue volume of 100 billion logistics giants.
Therefore, major domestic logistics companies want to seize this blue ocean market and accelerate international expansion. Kerry Logistics is no exception.
Kerry Logistics' global network spans 59 countries and territories, with sea, air, road and rail freight services extending globally. In the future, Alashankou International Express will be able to rely on Kerry Logistics' global network and its own sales network in more than 90 cities in China to attract more goods to Europe and Central Asia through the cross-border products of Alashankou International Express. Kerry Logistics' international freight business is expected to develop further as a result.
Earnings instability still needs to be taken seriously
Despite this, the Kerry Logistics market has been hot recently. But stretching the timeline, we can see that the company seems to be out of favor with investors for the past two years. Since 2021, Kerry Logistics' share price has been quite weak, with the company falling by about 70% in two years from 2021 to 2022.
Kerry Logistics has been re-evaluated downward, on the one hand, due to the sharp correction in freight rates, and on the other hand, it is related to the company's unstable fundamentals.
From a fundamental point of view, while the company's revenue has increased steadily, the performance of the profit side is worrying.
From 2019 to 2022, Kerry Logistics' revenue was RMB41.139 billion, RMB53.361 billion, RMB81.771 billion and RMB86.649 billion respectively, while the net profit attributable to the parent company in the same period was RMB3.788 billion, RMB2.896 billion, RMB7.939 billion and RMB3.579 billion respectively.
To make matters worse, in the first half of this year, the company's revenue almost halved, core net profit fell by 85% year-on-year, and the cross-border e-commerce logistics business segment suffered a loss of HK$505 million (the loss amount far exceeded the core net profit of HK$368 million this year).
According to Zhitong Financial APP, the company's international freight forwarding business is mainly composed of freight and cargo volume, and since the pre-epidemic period, freight rates have fallen sharply, from a historical high of US$15,000 in 2021 to an average freight of US$1,200 in the first half of this year.
Mr Anthony Cheung, Chief Executive Officer of Kerry Logistics Network, said that despite the particularly difficult first quarter of 2023, the Group's overall performance has reached the bottom, with the Group's core net profit falling by 85% year-on-year, but its performance in the second quarter increasing by more than 30% quarter-on-quarter. He pointed out that for now, the performance of the third season is similar to that of the second season, and it remains to be seen whether the fourth season can be maintained.
Moreover, for freight forwarding and logistics companies, in addition to the decline in freight volumes, geopolitical concerns and cost inflation will affect their operating conditions.
According to the minutes of the Federal Reserve's December 2023 monetary policy meeting, it seems clear that the darkest hour for inflation has passed.
In November 2023, the core PCE price index, which excludes food and energy, rose 0.1% month-on-month and 3.2% year-on-year, and the Fed's favored inflation measure grew at an annualized rate of just 1.9% over the past six months, and if the current trend continues, the Fed is basically on track to achieve its 2% inflation target.
There was also increased optimism about the path of inflation, arguing that "progress has been made" and that they are willing to cut interest rates in 2024 if this trend continues.
Looking back at Kerry Logistics, as mentioned above, the company's business layout is global, and the Americas region occupies half of its core business, international freight. Given the current Fed's key "pivot", overseas demand is expected to recover further, and Kerry Logistics' fundamentals are expected to further strengthen against this backdrop.
It is worth noting that institutions have released positive signals to Kerry Logistics. Xiaomo upgraded the rating of Kerry Logistics (00636) from "neutral" to "overweight", raised the profit forecast for this year and next year by 14% to 16%, and raised the target price from HK$9 to HK$11.
JPMorgan predicts that Kerry Logistics' earnings will rebound by 128%, and this year's earnings rebound will drive a valuation reassessment, upgrading Kerry Logistics' rating from "neutral" to "overweight", raising its earnings forecast from 14% to 16% this year and next, and raising the target price from HK$9 to HK$11 accordingly.
It is certain that the strategic synergy between Kerry Logistics and SF Express is still worth looking forward to. In addition, Kerry Logistics has made frequent business moves to carry out the operation of SF Ezhou Airport International Cargo Station, the acquisition of the equity of SF Alashankou International Express Railway, and the undertaking of the Syr Darya project, laying a solid foundation for its sustainable growth. In the future, with the gradual "turn" of the Federal Reserve's policy, Kerry Logistics may also benefit from the recovery of the market. However, whether the company's stock price performance is a new round of rising signals still needs to be tested by the market.