Growing intra-Asia trade buoys Kerry Logistics profits

Unveiling Kerry Logistics 2018 interim results, managing director William Ma said: “Although the world economy experienced growth in the first half of 2018, global demand has been flat. Nevertheless, the China-US trade dispute has caused manufacturing capacities to shift from Mainland China to other Asian countries, bringing about an increase in shipping volume and production activities in Asia.

“Southeast Asia, in particular, has enjoyed the fastest growth in the region. Leveraging the strongest network in Asia and our diversified business portfolio, the Group achieved double digit growth in turnover, core operating profit, and core net profit in 2018 1H.”

During the first half of 2018, the Group’s net profits surged 20% to HK$948m (US$89.19m), compared HK$788m during the same period in 2017. The steep increase in net profit was achieved off the back of a 27% increase in revenues of 27% at HK$17.46bn compared to HK$13.70bn in 2017.

The integrated logistics division was the greatest benificiary of the booming intra-Asia trade and e-commerce business, achieving a 25% rise in segment profit in the first half of 2018. The IL business in Hong Kong, Taiwan, and Asia as a whole is expected to remain a major earnings driver for the rest of the year, the Group said.

In Hong Kong, driven by stable growth in revenue from existing customers and new customer gains, the segment profit of the logistics business grew by 71% in the first half of the year. The Group’s business in Taiwan saw a profit recovery in January to June 2018.

Sustained by strong intra-Asia trade and increasing shipping volumes in the region resulting from the China-US trade tensions, the IL segment profit of Asia posted a 54% growth during the interim. In Thailand, the Group’s IL segment profit recorded an 84% growth riding on the flourishing e-commerce business. In July 2018, Kerry Express Thailand entered into a strategic partnership with VGI Global Media Public Company Limited, the subsidiary of Bangkok Mass Transit System Public Company Limited, and becomes the only express logistics partner of VGI and Bangkok Mass Transit System.

“Furthermore, the seaport business in Thailand has shown encouraging improvement following the berth extension at the Kerry Siam Seaport since March 2018,” the Group said

In Mainland China, rising labour costs, subpar performance of certain customers in the electronics sector, and the China-US trade conflict continued to undermine the Group’s business. Despite its decelerating pace of growth, the decline in its profit eased in the first half of 2018.

Meanwhile, the international freight forwarding division maintained volume growth in 2018 1H, particularly in the North American and Indian Peninsula regions, resulting in a 6% increase in segment profit. Nevertheless, both profit and profit margin contributed by the IFF division contracted as a result of the drop in performance in Mainland China.

Kerry Logistics acquired the Johannesburg-based Shipping and Airfreight Services (Pty) Ltd in May 2018 to expand its service offerings in South Africa.

In June 2018, the Group strengthened its project logistics capabilities through the acquisition of a majority stake in the Milan-based Saga Italia S.p.A., which specialises in project logistics, heavy lift services, and material management. In the same month, the Kerry Logistics extended its rail and road freight capabilities by launching new cross-border rail and trucking services from Mainland China through Kazakhstan to Caucasus and Turkey, so as to capture the growing trades in new markets and Europe.

In July 2018, the Group’s member company Globalink and Georgia’s Anaklia City JSC signed a memorandum of understanding to cooperate in the development of the Anaklia Deep Sea Port and Special Economic Zone in Georgia. The port, scheduled for opening in 2020, is expected to become one of the largest in the Black Sea region.

The Group also established new subsidiary Kerry Freight Pakistan (Private) Limited to extend its foothold in Pakistan and leverage its first mover advantage along the China-Pakistan Economic Corridor.

George Yeo, chairman of Kerry Logistics, concluded, “The ongoing trade spat between Mainland China and the US is reshaping trade routes and global supply chains. While the trade volume between the two economies is expected to reduce in the near future, certain markets in Asia are likely to benefit conversely from the increased intra-Asia trade as customers look for alternative supply sources beyond Mainland China and the US.

“Moreover, Asia has been experiencing the fastest trade volume growth for both imports and exports driven by rising domestic consumption and increased investment. We expect our Asian business to continue to grow and contribute to a major part of the Group’s profit in three to five years’ time. Leveraging our expanding global network and solid coverage particularly in South and Southeast Asia, we are optimistic to maintain growth in the remainder of the year through exploiting new business opportunities and promising prospects in Asia and new markets along the Belt and Road trade paths.”

 

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