Kerry Logistics: Raising Fair Value Estimate by 5% on Higher Freight Rate Amid Red Sea Crisis

The China Containerized Freight Index has been significantly higher than end-2023’s level year to date because of the Israel-Hamas war, restocking needs in the US and Europe, and bad weather in China and Southeast Asia. After factoring in higher freight rate and higher international freight forwarding revenue assumptions, we raised Kerry Logistics Network’s, or KLN’s, 2024-25 total revenue by 6%-8% and net income by 15%-37%. The earnings are growing faster than revenue due to better operating leverage. We keep our 2026-28 revenue and net profit largely intact to reflect the normalization of freight rate in outer years. Consequently, we increase our fair value estimate to HKD 10.80 per share from HKD 10.30. The shares are currently undervalued and a gradual recovery in global demand for goods will drive its share price performance, in our view.