Stock Focus in the Logistics Industry: Kerry Logistics (KLN)

This article is regarding the Hong Kong logistics company Kerry Logistics Network Limited (KLN). I do have shares in KLN and my holdings have dropped by more than 20% and I was very tempted to cut losses or at least to reduce my holdings a few weeks ago. But I managed to hold my temptation and decided to consolidate my thoughts by writing this article before making the decision to sell off the stock of this company. This is not investment advice so please do your own due diligence when investing.

1. Company Overview

Kerry Logistics Network Limited (KLN) is a prominent Asia-based logistics company with a strong presence across Greater China, Southeast Asia and a network spanning 59 countries and territories. KLN used to be part of Kerry Properties (owned by Kuok Group) but was acquired by SF holdings in 2021. Despite the deal, Kerry Properties still holds a significant minority stake of about 20% in KLN.

2. Industry & Market Analysis

The logistics and freight forwarding industry is the backbone of global trade and supply chains, responsible for the planning, execution, and control of the movement of goods, services, and information from origin to consumption. 

Following years of high volatility for supply chains due to the global pandemic, 2024 painted a more stable picture, with many industry indicators returning to pre-COVID levels. The post-pandemic period has seen demand normalize from the artificial highs of 2020-2022, creating operational challenges for logistics companies. There have been several trends observed post COVID with the shift in Just-in-time (JIT) model to Just-in-case (JIC) model (see Appendix for more details on the 2 models). The vulnerability of the JIT model was exposed during COVID as issues like delays, port congestion and supplier shutdowns were the norm during the COVID period. There was no buffer to deal with sudden demand spikes or supply delays. The JIC model, on the other hand, holds extra inventory to buffer at various points in the supply chain to mitigate disruptions. It's a more resilient model, albeit at the expense of higher warehousing and inventory costs. 

With the advancement in AI and digital transformation, the industry will also need to incorporate strategies like integrating operations with advanced AI and machine learning, real time visibility tracking systems and automated decision-making processes. 

Despite the challenges, the logistics industry is positioned for sustained growth and the global freight and logistics market size is expected to reach USD 6376.99 billion in 2025 and grow at a CAGR of 4.99% to reach USD 8136.88 billion by 2030

3. Business Model & Strategy

KLN has 2 main business segments, 1) Integrated logistics (IL) and 2) International Freight Forwarding (IFF). IL involves end-to-end supply chain solutions, primarily warehousing, distribution, and contract logistics. The main key services involve warehousing and fulfillment (storing, packing, and shipping goods from a warehouse to customers), last mile delivery (final step of delivery—from a local distribution center to the customer’s doorstep) and value added services like packaging, labeling and inventory management. 

KLN has a strong Asia Pacific presence and a diversified portfolio with multiple service offerings across different logistics sectors. It is also a market leader in NVOCC (Non-Vessel Operating Common Carrier) through its wholly-owned subsidiary, Kerry Apex. Apex has been able to capitalize on its strong NVOCC leadership position by maintaining its dominance in the key Asia US trade lanes. APEX also offers a full suite of services from ocean and air freight, customs brokerage, to logistics solutions and door-to-door delivery in the U.S. This end-to-end capability differentiates them from pure freight forwarders and the positioning in the Asia-US trade lane is particularly valuable as it represents the world's busiest container shipping route, generating substantial volumes and revenue opportunities while providing a platform for further geographic expansion.

4. Financial Analysis

KLN currently has a market cap of $14.21 billion HKD and the table below shows some of the key financial metrics. Even though KLN registered strong revenue growth, profitability seems to have dropped. This is probably not too surprising as the company is slowly recovering from a challenging 2023 where the industry was greatly impacted by a slower than expected recovery in retail and an increase in operational costs due to global supply chain disruptions. The current PE does seem high as compared to the 5 year average but it is still lower than 2 of its biggest competitors Kuehne + Nagel International (18.5) and DHL (13.76).

Metric	Current	5 year average
PE Ratio	10.19	9.8
Debt / Equity	0.6	0.5
Current Ratio	1.44	1.49
Revenue growth	23%	10.5%
ROE	8.1%	10.9%
ROIC	5.52%	6.3%

Compared to 2023 which saw a 42% and 78% decline in revenues and net profit respectively, 2024 was characterized by a strong recovery with revenue surging 23% to HK$58.27 billion (2023: HK$47.41 billion), core operating profit increasing 23% to HK$2.73 billion, and core net profit growing 12% to HK$1.36 billion.

The drop in revenue in IL business (about 4%) was more than compensated by the strong surge in growth in the IFF business with revenue surging 39% to HK$1.95 billion, benefiting from increased demand in China, the US, Hong Kong, and Asia, higher ocean freight rates amid market supply shortage, and a strong position in the Asia-US trade lane as a leading NVOCC. IL and IFF constitute about 25% and 75% of revenue respectively. The surge in IFF revenue was due to a spike in ocean freight rate triggered by the red sea situation. In terms of geographical allocation, Hong Kong, China and Asia constitute about 58% of revenue.  

5. Investment Thesis

Ecommerce remains a major driver of air freight demand, particularly in Asia-Pacific markets, which will account for 80% of the projected $36 trillion global B2B ecommerce market by 2026, and is expected to grow by 20-25% in 2025 alone. This trend particularly benefits companies like Kerry Logistics with strong Asia-Pacific positioning.

The acquisition by SF holdings will be transformational for both companies, giving SF Holdings the international logistics capabilities it needed for global expansion while providing Kerry Logistics with access to SF's massive domestic Chinese network and resources

In addition, KLN's strong leadership in NVOCC through Kerry Apex provides it with a strong position in critical trade lanes. Kerry Apex massive 500,000 plus TEU annual volume also gives it significant negotiating power with ocean carriers for container space rates. 

6. Risks & Challenges

The global freight industry is undergoing significant regulatory changes which would increase operational costs. For example, the EU emissions trading system for shipping aims to curb CO2 emission by making it mandatory for ships over 5000 GT to pay for CO2 emissions. Another example is the EU's alternative fuels infrastructure regulation which mandates LNG and electric charging at major ports by 2030.

Besides all the new regulation, the global trade tensions and major conflicts do not see signs of abating. To mitigate the risk, alternative shipping routes would be required, and the longer routes and transit times would further push up costs.

China’s slower than expected economic recovery is also seeing significant impact to the global freight industry. China’s slowdown is a sign of deeper issues which involve long term structural shifts in its economy and companies must be able to match the lower demand, diversify its trade lanes and not be over reliant on China and leverage tech to cut costs. Failing which, the company runs the risk of being obsolete in the fast-changing global freight landscape.

7. Conclusion & Recommendation

My current holdings in KLN are down by about 25%. After a strong recovery in 2024, the stock has rebounded but I'm still wary of the global trade risks so I will be closely monitoring the performance of the company in the next few quarters. Probably will not be adding or reducing my current position also. 

APPENDIX

Just in Time (JIT) A Just-in-Time supply chain strategy minimizes inventory by receiving goods only when needed in the production or sales process — no earlier, no later.

Just in Case (JIC) A Just-in-Case model involves holding extra inventory or buffers at various points in the supply chain to mitigate disruptions or demand surges. 

Non-Vessel Operating Common Carrier (NVOCC) A Non-Vessel Operating Common Carrier (NVOCC) is an ocean carrier that transports goods under its own House Bill of Lading, or equivalent documentation, without operating ocean transportation vessels. NVOCCs act as intermediaries between shippers and actual vessel operators. It acts exactly like an ocean carrier, transporting cargo from one part of the world to another, just that it does not own any sea-going transportation vessels

Stock Focus in the Specialty Chemical Industry: Sika

Recently I have been thinking about diversifying some of my equities into Swiss companies. One of the main reasons for the sudden interest in Swiss equities is due to the strength of the Swiss franc and my desire not to be overly concentrated in US equities. The company I'm currently looking at is called Sika, which specializes in the specialty chemicals industry. This is a brand which I'm quite familiar with as it's widely used as an adhesive and sealant chemical in the construction industry which I'm currently working in. Whenever there are waterproofing and concrete bonding works, the name Sika almost always pops out.

Pls note this is not a buy or sell recommendation and do your own due diligence.

1. Company Overview

Sika is a Swiss company founded in 1910 and its headquarters is in Baar. It operates in over 100 countries with 400+ factories and is a global leader in construction chemicals and industrial bonding. The current CEO is Thomas Hasler who has been with the company since 1989.

2. Industry & Market Analysis

The specialty chemical industry which Sika operates in focuses on high-value, performance-driven chemical solutions tailored for specific applications such as construction chemicals (adhesives, sealants, waterproofing, concrete additives) and industrial manufacturing solutions (automotive, aerospace, renewable energy). The trend towards green construction and building more energy efficient buildings and the demand for EV and battery adhesives are just some of the growth drivers. 

It comes with no surprise Asia Pacific dominated the market with a 52.31% share in 2023, driven by robust demand in countries like China and India due to increasing pace of urbanization and infrastructure development. North America and Europe also hold significant shares, with ongoing investments in infrastructure and industrial development. (Fortune Business Insights)

Based on Fortune Business Insights, the specialty chemicals market was valued at approximately USD 627.7 billion in 2023, with projections indicating growth to USD 721.5 billion in 2024 and reaching USD 1,063.4 billion by 2032, reflecting a CAGR of 5.0% during the forecast period.

3. Business Model & Strategy

Sika business operations is divided into 2 main segments: 1) Construction (84% of revenue) and 2) Automotive and Industry (16% of revenue). Some of the construction solutions Sika provides in the construction industry include concrete admixtures for strength and durability enhancement, waterproofing systems, repair and reinforcement of aging infrastructures. Sika products are also widely used in the automotive, aerospace and manufacturing sectors. 

Over the years, Sika has strategically acquired several companies to improve its competitiveness. For example, it acquired Modern Waterproofing Group in 2020 which is a leading Egyptian company specializing in water proofing works to enhance its position in the Middle East and North African region. It also acquired MBCC Group and Kwik Bond Polymers in 2023 and 2024 respectively. MBCC is a leading global supplier of construction chemicals which further expanded Sika's portfolio with innovative, sustainable, and digital solutions across various sectors, including buildings, infrastructure, and underground construction. Kwik is a manufacturer of polymer systems for the refurbishment of concrete infrastructure in the USA. These strategic initiatives and acquisitions demonstrate Sika's commitment to growth, innovation, and market expansion, reinforcing its position as a global leader in the construction chemicals industry.

In summary, the company adopts a 5 pillar strategy for expansion namely 1) Market penetration, 2) Innovation, 3) Acquisitions, 4) Operational efficiency and 5) Sustainability. 

4. Financial Analysis

Sika currently has a market cap of $35 billion CHF and the table below shows some of the key financial metrics. It can be observed that the revenue growth and profitability margins seem to be slowing down. This could be due to weakness in the Chinese construction market (China is a significant market, contributing about 11.6% to the company’s net sales), currency fluctuations of the Swiss franc against other currencies and a challenging macroeconomic environment. 

Metric	Current	5 year average
PE Ratio	28.11	38.35
Debt / Equity	0.82	0.94
Current Ratio	1.77	1.89
Revenue growth	4.67%	8%
ROE	19.2%	23.3%
ROIC	8.8%	10.2%

In 2024, it achieved $11.76 billion in sales (an increase in 4.7%) and an increase of 17.4% in net profit to $1247.6million CHF.  The company announced it achieved sales of $2678 million CHF in Q1 as compared to $2648 million CHF in the previous year. The Americas and EMEA region saw organic growth of 4.9% and 0.7% respectively while Asia Pacific remained flat. Sales increase is expected to be in the region of 3-6% for fiscal 2025. 

In the last 12 months, operating cash flow was 1.74 billion and capital expenditures was 331.10 million, giving a free cash flow of 1.41 billion. Cash and cash equivalents currently stands at 712.9 million CHF. 

Sika does pay a dividend, and the current yield is 1.65% and the payout ratio is 21.25% which suggests there is ample room to increase payout in the future. 2025 payout is 3.6CHF which is an increase of 9.1% as compared to 2024. 

5. Investment Thesis

Sika is a household name in the construction industry and most professionals working in this industry would have heard of it. It's truly a market leader in the specialty chemical industry and it has strengthened its competitiveness over the years through strategic acquisitions as highlighted above. 

Urbanization and the rise of mega infrastructure projects are set to propel global construction demand. Speaking of mega infrastructure projects, look no further than home soil, where Changi Airport T5 is set to commence construction works after a 2-year hiatus. India is also building its first bullet train project spanning 508 km between Mumbai and Ahmedabad. The large demand for infrastructure in India and SEA will soften the blow caused by the slowdown in China’s construction market. 

Additionally, the growing need for data centers—fueled by advancements in AI and cloud computing—will further accelerate the demand for construction. For example, the $110 billion USD Stargate initiative is a massive investment opportunity.

The construction industry's strong emphasis on sustainability, cost efficiency, durability and performance has created a huge opportunity for Sika innovative products. For example, concrete is a material that has a large carbon footprint. Sika has produced several products which reduce CO2 emissions while increasing the material strength and durability. 

Sika is a high-quality, globally diversified company with strong innovation and resilience in construction markets. Its long-term growth prospects in sustainable construction also remain compelling.

6. Risks & Challenges

One of the key risks the company faces is the price of raw materials. Specialty chemicals rely on petrochemicals, resins, and polymers which are highly dependent on oil prices. The prices of raw materials could be further exacerbated by supply chain disruptions. 

The construction and automotive sectors which Sika is heavily dependent on are also highly sensitive to economic cyclicality. In the latest outlook highlighted in Sika media and investor presentation, the company did highlight the continued challenging market environment in the European construction and automotive & industry. It also highlighted the challenging Chinese construction markets as consumer confidence remains low. 

7. Conclusion & Recommendation

I do owe shares in Sika with an average price of 234.2 CHF. Its currently down by about 7% and I will be closely monitoring the performance of the company in the next few quarters. But I believe its a good company with strong financial fundamentals and its a global leader in the specialty chemicals industry  so I will probably continue to average down

Stock Focus on AI industry: Arista Networks

This is short research which I have done for Arista Networks. I do own Arista's shares and note this is not a buy or sell call. Readers are strongly advised to dive deeper into the company and do your own due diligence and asses your own risk appetite before investing. 

1. Company Overview

Arista Networks, Inc. is a U.S.-based networking company specializing in high-performance cloud networking solutions for large data centers and campus environments. Founded in 2004 by Andy Bechtolsheim, David Cheriton, and Ken Duda, Arista is headquartered in Santa Clara, California.

The company is best known for its Ethernet switches, routing platforms, and cloud networking software, particularly its Extensible Operating System (EOS)—a highly programmable and scalable OS used across its devices. 

Together, these components enable fast, scalable, and automated network infrastructure, which is essential for handling the growing demands of cloud computing, big data, and AI.

Key customers include Microsoft, Meta (Facebook), Google, and other hyperscalers, making Arista a crucial player in the AI, cloud computing, and high-frequency trading ecosystems. It is seen as a major competitor to Cisco Systems, though Arista focuses more on software-driven, cloud-scale networking.

2. Industry & Market Analysis

The cloud infrastructure industry is experiencing rapid growth, driven by the increasing demand for AI workloads which increases the demand for high-performance computing resources. Based on figures provided by CIO Drive and Network World, global data center capital expenditures (CapEx) reached $455 billion in 2024, marking a 51% year-over-year increase. This growth is primarily attributed to the escalating demand for AI capabilities. Projections indicate that data center CapEx will surpass $1.1 trillion by 2029, with AI workloads accounting for nearly half of this spending.

Microsoft, Alphabet and Meta have already spent a combined sum of approximately $81 billion in Q1 2025 on AI driven data centers. Projections have already suggested combined spending could exceed $300 billion by end of the year (MarketWatch).

3. Business Model & Strategy

Arista Networks operates a hybrid hardware and software-driven business model, focusing on delivering high-performance cloud networking solutions tailored for hyperscale data centers, service providers, and enterprise campus environments. The company generates the majority of its revenue through the sale of Ethernet switches and routing platforms, while also building a fast-growing revenue stream from its software and services offerings.

At the heart of Arista’s innovation is its Extensible Operating System (EOS)—a single-image, highly programmable software that runs across all Arista devices. A single image architecture uses one unified operating system across all network devices—switches, routers, etc.—regardless of model or hardware configuration. This means engineers need not learn multiple OS. Testing and deployment is faster which leads to improved efficiency. 

Combined with CloudVision, Arista’s network-wide automation and telemetry platform, the company provides a unified and scalable solution that enables clients to automate, monitor, and manage networks efficiently. This software-centric approach offers a distinct advantage in terms of flexibility, reliability, and ease of integration compared to legacy networking vendors.

One of Arista’s core strengths lies in its strategic alignment with hyperscale cloud providers such as Microsoft, Meta, and Google. These "cloud titans" rely on Arista to deliver customized, high-bandwidth networking solutions to support demanding workloads—especially those related to artificial intelligence (AI) and machine learning. With the explosive growth in AI, Arista is actively expanding its portfolio to include next-generation 800G and 1.6T Ethernet switches, specifically designed to meet the throughput and latency requirements of large-scale training clusters.

In addition to its dominance in data center networking, Arista is aggressively expanding into enterprise campus environments, applying its cloud-native principles to on-premises networks. Through strategic acquisitions, such as Awake Security and Mojo Networks, Arista has enhanced its capabilities in network security, visibility, and wireless access, enabling it to offer end-to-end campus solutions.

Operationally, Arista maintains high gross margins exceeding 60%, supported by its efficient use of merchant silicon and modular architecture. This cost-effective model, combined with premium software offerings, allows Arista to remain nimble and profitable even as it scales its operations.

Lastly, Arista’s commitment to open standards and interoperability enhances its platform’s appeal. By integrating seamlessly with leading cloud and virtualization platforms (e.g., VMware, Red Hat, Microsoft Azure), Arista supports hybrid and multi-cloud deployments, which are increasingly common among large enterprises.

In summary, Arista’s business model is built on delivering scalable, high-performance, software-driven networking infrastructure. Its differentiation lies in its robust software stack, strategic hyperscaler partnerships, and focus on emerging areas like AI and campus networking. These strategies collectively position Arista for sustained revenue growth and long-term industry leadership.

4. Financial Analysis

Arista networks currently has a market cap of $108.66 billion and the table below shows some of the key financial metrics. It can be observed it has high profitability and low debt which is highly impressive for a tech company.

Metric	Current	5 year average
PE Ratio	40.69	39.74
Debt / Equity	0	0.016
Current Ratio	3.93	4.47
Revenue growth	22%	25%
ROE	33.7%	28.3%
ROIC	21.8%	18.9%

The company also released its latest Q1 2025 financial results as summarized below.

Metric	Q1 2025	Q1 2024
Revenue	$2.005 billion	+27.6% YoY
GAAP Gross Margin	63.70%	63.70%
Non-GAAP Gross Margin	64.10%	64.20%
GAAP Net Income	$813.8 million($0.64/share)	$637.7 million($0.50/share)
Non-GAAP Net Income	$826.2 million($0.65/share)	$637.7 million($0.50/share)

Its balance sheet is also healthy with total assets of $12.4 billion, of which $8.15 billion is cash & equivalent and total liabilities stands at $2.9 billion. Operating cash flow is $641.7 million, and the company managed to generate a free cash flow of $613.3 million for Q1 2025. 

With a strong cash flow, the company has completed $787 million in stock repurchases and the board has authorized an additional $1.5 billion for stock buybacks. 

The table below summarizes some of the key financial metrics as compared to other companies of similar nature. Juniper Networks has a PE even higher than Arista despite showing weaker financial metrics. With the exception of Nvidia, Arista Networks is outperforming its 2 closest competitors. 

Metric	Arista Networks (ANET)	Cisco Systems (CSCO)	Juniper Networks (JNPR)	NVIDIA (NVDA)
Revenue Growth (YoY)	+27.6%	-6%	-9%	+114.2%
Gross Margin (GAAP)	63.7%	64.70%	59.70%	74.96%
Return on Equity (ROE)	33.7%	22.70%	6.02%	109.12%
Debt-to-Equity Ratio	0	0.68	0.37	0.11
Free Cash Flow Growth (YoY)	+77.3%	-46.40%	-5.70%	+30.76%
Price-to-Earnings (P/E) Ratio	40.7	24.6	41.8	47.7

5. Investment Thesis

Currently the majority of global data centers still use Ethernet technology due to its scalability, interoperability, and cost-efficiency. Arista holds a significant technological leadership in this area as its an early mover in 400G and 800G (400 Gigabits and 800 Gigabits per second) switching products. Their EOS (Extensible Operating System) is highly modular, stable, and automation-friendly — a huge selling point for hyperscalers and enterprises. Arista Network products are highly embedded in hyperscalers data centers, and you can't just go in to replace them without incurring a large cost. 

Another area of note is the emergence of RoCE (RDMA over Converged Ethernet) as a more cost effective alternative to Infiniband for AI workloads (like training large models) and HPC (high performance computing) which requires which has strict performance requirements like ultra-low latency and high throughput and Arista is increasingly positioned as the Ethernet alternative to Nvidia’s Infiniband in AI clusters.

6. Risks & Challenges

The concentration in revenue by a few key companies is a concern. 

Based on sources from The Next Platform, as of 2024, hyperscalers—major cloud providers like Microsoft and Meta Platforms—accounted for approximately 48% of Arista Networks' total revenue, marking a significant increase from previous years. Any slow down in spending from the hyperscalers would significantly impact the company. 

7. Conclusion & Recommendation

I currently have a small position in Arista with an average price of $92.44. Its current share price is $96.42 and at this price, I feel the stock price is kind of overvalued. I did buy in small trenches when it was hovering around the $80 mark. Based on its strong earnings, relatively strong business moat and low debt, I will continue to buy in when the share price is more reasonably priced. 

Appendix

Ethernet switches are hardware devices that connect multiple devices within a network (like servers in a data center) and manage data traffic efficiently by directing data packets only to their intended destinations. Arista’s switches are known for ultra-low latency and high throughput, making them ideal for high-performance environments like cloud data centers and AI workloads.

Routing platforms determine the best path for data to travel between networks. Arista's routers support high-speed interconnects across large-scale networks, ensuring fast and reliable data delivery across regions or cloud infrastructure.

Extensible Operating System (EOS) is Arista’s software platform that runs across all its switches and routers. EOS is modular, programmable, and highly reliable, enabling network automation, real-time monitoring, and rapid scaling—key features for cloud-scale and AI-driven networks.

RoCE (Remote Direct Memory Access (RDMA) over Converged Ethernet) Imagine two servers need to send data to each other very fast, without bothering the CPU or taking extra steps. Normally, with Ethernet, data must go through a lot of layers: from memory → CPU → network card → switch → destination → CPU → memory. But RoCE skips most of that and allows servers to send data directly from the memory of one server to the memory of another, bypassing the CPU. It’s used by companies that want Infiniband-level performance but prefer using Ethernet-based infrastructure (like what Arista sells).

Infiniband It is a specialized, high-speed networking technology for connecting powerful machines together — mainly used in AI and supercomputing, where speed and precision are critical.