SF Holding: Fair Value Estimate Stays at CNY 54; Acquiring Kerry Express Thailand

SF’s 51.5%-owned subsidiary Kerry Logistics Network’s, or KLN's, plan to distribute its 52.1% stake in Thailand-listed Kerry Express (Thailand), or KEX, to KLN shareholders gives SF a direct 26.8% stake in KEX and triggers a mandatory tender offer of KEX by SF. Assuming 100% acceptance of the offer, the move will cost SF CNY 1.4 billion, which makes up less than 3% of SF’s cash as at end-September 2023 figures. As KEX is loss-making, the move is expected to be initially negative to SF’s operating profit by around 3% in 2024, assuming the offer is completed by the end of April 2024. Given the relatively limited impact, we retain our fair value estimate for SF at CNY 54 per share. We remain buyers of SF and do not expect this move to affect our wide moat rating.