HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

Equity Bottom-Up

<ul>
<li>Fu Shou Yuan's performance in full-year 2024 is likely to fall short of expectations. The current pain point is declining performance growth due to difficulty of expanding beyond Shanghai region.</li>
<li>If Fu Shou Yuan's dividends/stock buybacks are lower-than-expected, we don't think the stock is worth holding for the long term, since long-term revenue growth rate would fall to single digit.</li>
<li>Since high growth is difficult to achieve, it’s better to buy at a low price (e.g. PE of 10x).When valuation bounces back to 15x PE, investors could consider taking profits.</li>
</ul>


Fu Shou Yuan's performance in full-year 2024 is likely to fall short of expectations. The current pain point is declining performance growth due to difficulty of expanding beyond Shanghai region.
If Fu Shou Yuan's dividends/stock buybacks are lower-than-expected, we don't think the stock is worth holding for the long term, since long-term revenue growth rate would fall to single digit.
Since high growth is difficult to achieve, it’s better to buy at a low price (e.g. PE of 10x).When valuation bounces back to 15x PE, investors could consider taking profits.


Fu Shou Yuan (1448.HK) - Investment Strategy May Need to Be Adjusted

HK/China Equity Long-Short

Osbert Tang, CFA

Thematic (Sector/Industry)

<ul>
<li>For 1H25, the companies under our coverage will report a 16.8% earnings growth. Breaking down by quarter, 2Q25 growth will accelerate to 30.8%, from 14.1% in 1Q25. </li>
<li>The best growth rates are at <a href="https://www.smartkarma.com/entities/china-national-building-ma-h" target="_blank" data-smartkarma-citation="entities:184:1" rel="noopener">China National Building Material (3323 HK)</a>, <a href="https://www.smartkarma.com/entities/china-international-capital-corporation-ltd" target="_blank" data-smartkarma-citation="entities:1071:1" rel="noopener">CICC (3908 HK)</a>, <a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital Intl Airport (694 HK)</a>, <a href="https://www.smartkarma.com/entities/tongcheng-travel-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng Travel (780 HK)</a>, and <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC Intl (1308 HK)</a>. </li>
<li>The worst ones are <a href="https://www.smartkarma.com/entities/china-travel-international-investment-hong-kong" target="_blank" data-smartkarma-citation="entities:3879:1" rel="noopener">China Travel Intl (308 HK)</a>, <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transp (1138 HK)</a>, <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a>, <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free" target="_blank" data-smartkarma-citation="entities:36229:1" rel="noopener">CTG Duty Free (1880 HK)</a>, and <a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin (2343 HK)</a>. </li>
</ul>


For 1H25, the companies under our coverage will report a 16.8% earnings growth. Breaking down by quarter, 2Q25 growth will accelerate to 30.8%, from 14.1% in 1Q25. 
The best growth rates are at China National Building Material (3323 HK), CICC (3908 HK), Beijing Capital Intl Airport (694 HK), Tongcheng Travel (780 HK), and SITC Intl (1308 HK). 
The worst ones are China Travel Intl (308 HK), Cosco Shipping Energy Transp (1138 HK), China Southern Airlines (1055 HK), CTG Duty Free (1880 HK), and Pacific Basin (2343 HK). 


China & HK Strategy: 1H25 Preview - Where Are the Upside and Downside Surprises?

<ul>
<li>According to the management, the performance of 24H1 should be better than that of 21H1, but Fu Shou Yuan's performance in 2024 full year may still fall short of expectations.</li>
<li>In the future, the development strategy of Fu Shou Yuan would rely more on endogenous growth. Without aggressive M&amp;A, long-term revenue growth rate could fall to single digit.</li>
<li>Special dividends will continue in the future. However, one major risk for Fu Shou Yuan is policy risk. The bottom line is the demand for the funeral industry always exists.</li>
</ul>


According to the management, the performance of 24H1 should be better than that of 21H1, but Fu Shou Yuan's performance in 2024 full year may still fall short of expectations.
In the future, the development strategy of Fu Shou Yuan would rely more on endogenous growth. Without aggressive M&amp;A, long-term revenue growth rate could fall to single digit.
Special dividends will continue in the future. However, one major risk for Fu Shou Yuan is policy risk. The bottom line is the demand for the funeral industry always exists.


Fu Shou Yuan (1448.HK) - Negative Growth in 24H1 Seems Inevitable

<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

<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

China

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

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Fu Shou Yuan (1448 HK)