HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>Fu Shou Yuan’s 2023 performance was indeed not good, with negative growth in 23H2.Shanghai alone has limited market capacity.No matter how strong it is, it cannot drive the national market.</li>
<li>Fu Shou Yuan has encountered difficulties in external expansion and M&amp;A, so it chooses to increase dividends. However, this means the Company may have to say goodbye to high growth.</li>
<li>The founder's “past bad record” and uncertain business outlook hinder the upward potential of valuation, which requires a high margin of safety.It’s better bought at low price to collect dividends.</li>
</ul>


Fu Shou Yuan’s 2023 performance was indeed not good, with negative growth in 23H2.Shanghai alone has limited market capacity.No matter how strong it is, it cannot drive the national market.
Fu Shou Yuan has encountered difficulties in external expansion and M&amp;A, so it chooses to increase dividends. However, this means the Company may have to say goodbye to high growth.
The founder's “past bad record” and uncertain business outlook hinder the upward potential of valuation, which requires a high margin of safety.It’s better bought at low price to collect dividends.


Fu Shou Yuan (1448.HK) - Due to the Pain Points, Investment Logic Changes

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener">Fu Shou Yuan (1448 HK)</a>'s net profit grew 20.1% in FY23; and if not a withholding tax of Rmb87.4m, its net profit would have increased by over 30%.  </li>
<li>Including a special DPS of HK$0.2139, full-year payout ratio reached 98.5%. Still, it has net cash of Rmb2.7bn or 24% of its market capitalisation.</li>
<li>Profitability outlook is encouraging - structural demand increase, higher ASP, and well-contained costs. Its land reserve is enough to be consumed for 82 years.</li>
</ul>



Fu Shou Yuan (1448 HK)'s net profit grew 20.1% in FY23; and if not a withholding tax of Rmb87.4m, its net profit would have increased by over 30%.  
Including a special DPS of HK$0.2139, full-year payout ratio reached 98.5%. Still, it has net cash of Rmb2.7bn or 24% of its market capitalisation.
Profitability outlook is encouraging - structural demand increase, higher ASP, and well-contained costs. Its land reserve is enough to be consumed for 82 years.


Fu Shou Yuan (1448 HK): As Solid as It Goes

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener">Fu Shou Yuan (1448 HK)</a> is likely to declare a special dividend in its FY23 result announcement as indicated in its board meeting notification.</li>
<li>Net cash at end-1H23 amounted to 14.5% of its current share price, providing room for imagination of the amount of special dividends. </li>
<li>Besides raising its yield, returning excess cash should raise its ROE. This will also demonstrate the management's confidence on the outlook and its financial position.</li>
</ul>



Fu Shou Yuan (1448 HK) is likely to declare a special dividend in its FY23 result announcement as indicated in its board meeting notification.
Net cash at end-1H23 amounted to 14.5% of its current share price, providing room for imagination of the amount of special dividends. 
Besides raising its yield, returning excess cash should raise its ROE. This will also demonstrate the management's confidence on the outlook and its financial position.


Fu Shou Yuan (1448 HK): Proposing a Special Dividend

<ul>
<li>
<a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener">Fu Shou Yuan (1448 HK)</a> has a solid 1H23 with net profit jumped 78% YoY. Its margin reached the highest level, reflecting resurgance in demand and good cost control.</li>
<li>Both volume and ASP growth led us to believe there is positive room for profitability improvements. Its balance sheet has also strengthened with net cash equals 17% of share price.</li>
<li>A 18.4% increase in pre-need contracts signed suggests encouraging underlying demand. More M&amp;As are added drivers to earnings prospects.</li>
</ul>



Fu Shou Yuan (1448 HK) has a solid 1H23 with net profit jumped 78% YoY. Its margin reached the highest level, reflecting resurgance in demand and good cost control.
Both volume and ASP growth led us to believe there is positive room for profitability improvements. Its balance sheet has also strengthened with net cash equals 17% of share price.
A 18.4% increase in pre-need contracts signed suggests encouraging underlying demand. More M&amp;As are added drivers to earnings prospects.


Fu Shou Yuan (1448 HK): More than Just a Recovery from Low Base

<ul>
<li>The high growth in 23H1 is unsustainable. 23H2 YoY revenue growth would be single-digit. Due to 23H1’s high base, we cannot rule out the possibility of negative growth in 24H1.</li>
<li>In the case of lower-than-expected external M&amp;A activities, Fu Shou Yuan has accumulated a large amount of cash, which would drag down ROE. So, current dividend policy still needs improvement. </li>
<li>Fu Shou Yuan's expansion would be relatively moderate. Double-digit revenue growth can still be expected in the long term. The market value of above RMB15 billion is more reasonable. </li>
</ul>


The high growth in 23H1 is unsustainable. 23H2 YoY revenue growth would be single-digit. Due to 23H1’s high base, we cannot rule out the possibility of negative growth in 24H1.
In the case of lower-than-expected external M&amp;A activities, Fu Shou Yuan has accumulated a large amount of cash, which would drag down ROE. So, current dividend policy still needs improvement. 
Fu Shou Yuan's expansion would be relatively moderate. Double-digit revenue growth can still be expected in the long term. The market value of above RMB15 billion is more reasonable. 


Fu Shou Yuan (1448.HK) - Magic Is About to Disappear, but Is Still Undervalued

China

Fu Shou Yuan International Group, Ltd. is a death care service provider in China.  The Company operates cemeteries and funeral facilities.

Fu Shou Yuan (1448 HK)