China’s high funeral companies supplier fell into the purple within the first half of this 12 months, extending a 12 months of income and revenue declines in 2024
Key Takeaways:
- Fu Shou Yuan stated it misplaced as much as 260 million yuan within the first half of this 12 months, sparking a 9% selloff of its inventory
- With a land financial institution of two.83 million sq. meters, practically half in Shanghai, the dying care operator nonetheless has loads of house left to serve its clients
With China’s annual Hungry Ghost Pageant lower than a month away, it appears appropriate the nation’s high funeral companies supplier may provide up some unhealthy information. That ailing omen got here final week in an alert from Fu Shou Yuan Worldwide Group Ltd. (1448.HK), which warned that it might report a lack of between 235 million yuan ($32.7 million) and 265 million yuan for the primary half of this 12 months, reversing an almost 300 million yuan revenue a 12 months earlier.
It blamed the reversal on cautious shopper spending, elevated tax prices and expenses associated to declining worth of a few of its property. Spooked traders reacted by dumping the corporate’s shares, which fell by 9% the following buying and selling day. The inventory stabilized later within the week, as analysts predicted a rebound within the second half of the 12 months. But it surely’s nonetheless down about 13% this 12 months, displaying it has but to hitch the 2025 rally for a lot of Chinese language shares.
Fu Shou Yuan is king of a fragmented Chinese language funeral companies market, with cemeteries and funeral amenities in main cities throughout 17 provinces, municipalities and autonomous areas. It operates in a market the place the common spending per funeral totaled 37,000 yuan in 2021, or about 45% of annual family revenue. Spending is way increased within the prosperous cities the place Fu Shou is energetic, with the common burial plot costing 83,100 yuan in Beijing, 99,900 yuan in Shanghai and 64,100 yuan in Shenzhen final 12 months.
The Shanghai-based firm was based in 1994 and listed in 2013, selecting up large names like Carlyle in a extremely oversubscribed IPO as traders clamored for a bit of the nation’s fast-growing dying care market at a time when the financial system was booming. However the temper is way extra somber now as China’s financial system slows after years of fast development.
Fu Shou Yuan’s newest revenue warning prolonged a weak 12 months for the corporate in 2024, when its income fell 21% year-on-year to about 2.1 billion yuan. Its revenue fell by a good greater 53% to 373 million yuan, although we must always level out 2023 was a file 12 months for each revenue and income as a consequence of pent-up demand following the top of the pandemic.
Whereas traders may be briefly spooked by Fu Shou Yuan’s newest financials, there are nonetheless some causes for optimism. China’s quickly getting old inhabitants means the variety of individuals age 60 and above reached 310.3 million, or 22% of the whole, final 12 months. That is pumping life into the funeral companies market, which grew by an estimated 6.2% in 2024 to $4.3 billion, as deaths elevated to a file 10.93 million. The market is anticipated to additional develop to $6 billion by 2030, in keeping with Grand View Analysis.
Fu Shou Yuan additionally has the benefit of scale in a funeral companies market that numbered 13,879 operators by the top of 2021. As one of many trade’s leaders, the corporate’s market cap of practically $1 billion is 21 occasions that of smaller listed rival Anxian Yuan China (0922.HK).
Regardless of its dip into the purple this 12 months, Fu Shou Yuan has a trailing price-to-earnings (P/E) ratio of 19 and price-to gross sales (P/S) ratio of three.31, which each look a lot more healthy than the P/E ratio of seven and P/S ratio of 1.53 for Anxian Yuan. And of the 5 analysts masking Fu Shou Yuan polled by Yahoo Finance, 4 really useful it as a “purchase” or “sturdy purchase” and are forecasting a rebound for the corporate within the second half of the 12 months.
Large land financial institution
Different components are additionally working in Fu Shou Yuan’s favor, together with shortage of land for funeral plots. On the finish of final 12 months, the corporate had a saleable space for burial plots of two.83 million sq. meters, barely lower than in 2023, however sufficient to fulfill its wants over the long term, it stated. What’s extra, practically 50% of its income is generated from Shanghai, China’s monetary middle and residential to among the nation’s highest land costs, making its property within the metropolis and its suburbs notably helpful.
Fu Shou Yuan says it is making an attempt to scale back its footprint, although it is unclear if it plans to place its cemetery properties available on the market any time quickly. Excessive-rise vertical cemeteries and digital ancestral halls are rising in recognition as space-saving measures, with the Beijing municipality calling for a 30% discount of land at the moment occupied by burial plots. Fu Shou Yuan has joined the decision for extra environment friendly land use, and have become a sector chief with its launch of the primary interactive digital ancestral corridor in China final 12 months. That facility combines options like a digital memorial corridor, digital recreations of the deceased, and digital household heritage and testimonials in three-dimensional format.
The corporate additionally operates a “Metaverse Park” the place individuals can conduct a variety of conventional actions within the digital realm, together with memorial plaque setting, and bathing and hanging blessings ceremonies for the deceased.
Fu Shou Yuan’s declining income displays shopper worries about spending cash throughout an financial downturn that has now lasted greater than two years. To cater to altering occasions, the corporate is repositioning its model, calling itself a “life expertise service supplier,” in addition to an “explorer and participant within the growth and reform of the funeral trade.”
Fu Shou Yuan additionally likes to level out that the development for cremating our bodies, moderately than giving them conventional burials, and storing the ensuing ashes in columbariums is resulting in a “large demand for dying care companies” out there. China’s cremation price was already as much as 58.8% in 2021, when practically 6 million our bodies had been cremated. The speed is anticipated to continue to grow with increased ranges of urbanization, the corporate says. For a youthful technology of extra environmentally acutely aware clients, Fu Shou Yuan additionally likes to level out it has an “eco-friendly” cremator enterprise that features the newest expertise.
In 2017, Fu Shou Yuan launched a strategic pivot by putting higher emphasis on “pre-need” contracts. Such preparations have proved in style, and it signed 20,229 such contracts in 2024, up 14.2% from 2023. The corporate can be exploring built-in pre-need contracts that present hospice care, grief counseling and “emotional intervention,” in keeping with its 2024 annual outcomes.
Fu Shou Yuan has additionally used a beneficiant dividend coverage to attempt to help its inventory, declaring a complete annual dividends of HK$0.5474 in 2024, equal to about 16% of the present share value. In April, it additionally introduced a mandate to repurchase as much as 10% of its shares. However such measures are not doing a lot to spice up the corporate’s inventory recently, and Fu Shou Yuan in all probability must breathe new life into its core enterprise earlier than it may possibly win again traders.
Benzinga Disclaimer: This text is from an unpaid exterior contributor. It doesn’t signify Benzinga’s reporting and has not been edited for content material or accuracy.
