HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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

HK/China Healthcare Analyst (ex-Fosun Pharma)

Xinyao (Criss) Wang

<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

<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 2022 results were below our expectations. Affected by the 22Q4 pandemic, the performance recovery in 22H2 was lower than expected. </li>
<li>The high demand due to soaring death rate since 22Q4 would be reflected in 23H1 results. Together with low base last year, strong performance rebound in 23H1 is worth expecting.</li>
<li>The reason behind short-term trade and long-term hold is different. But considering the Company has no obvious flaws in its long logic, every pullback can be a good buying opportunity.</li>
</ul>



Fu Shou Yuan (1448 HK)'s 2022 results were below our expectations. Affected by the 22Q4 pandemic, the performance recovery in 22H2 was lower than expected. 
The high demand due to soaring death rate since 22Q4 would be reflected in 23H1 results. Together with low base last year, strong performance rebound in 23H1 is worth expecting.
The reason behind short-term trade and long-term hold is different. But considering the Company has no obvious flaws in its long logic, every pullback can be a good buying opportunity.


Fu Shou Yuan (1448.HK) - 2022 Results Missed Expectations, but the Outlook Remains Positive

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/invocare-ltd" target="_blank" data-smartkarma-citation="entities:9044:1" rel="noopener">Invocare Ltd (IVC AU)</a> has received an unsolicited, preliminary, non-binding indicative offer from TPG Global to acquire the company at A$12.65/share in cash.</li>
<li>TPG has also acquired 17.8% of the shares in <a href="https://www.smartkarma.com/entities/invocare-ltd" target="_blank" data-smartkarma-citation="entities:9044:1" rel="noopener">Invocare Ltd (IVC AU)</a> via a combination of stock and derivatives.</li>
<li>With the company now in play, there could be competing offers. Already owning 17.8% of the company, TPG is now invested in ensuring they gain control.</li>
</ul>



Invocare Ltd (IVC AU) has received an unsolicited, preliminary, non-binding indicative offer from TPG Global to acquire the company at A$12.65/share in cash.
TPG has also acquired 17.8% of the shares in Invocare Ltd (IVC AU) via a combination of stock and derivatives.
With the company now in play, there could be competing offers. Already owning 17.8% of the company, TPG is now invested in ensuring they gain control.


InvoCare (IVC AU): TPG's A$12.65/Share NBIO

<ul>
<li>The second wave of pandemic is important logic to drive up Fu Shou Yuan’s share price, but the peak value/lethality could be lower than first wave, leading to lower-than-expected demand.</li>
<li>Whether the second wave can "arrive as expected" may not depend on pandemic itself, but on "whether to let it happen",especially when China's making every effort to promote economic recovery.</li>
<li>Besides solid fundamentals/optimistic performance, hot market sentiment is very essential if <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 share price is to outperform. Policy changes are also a potential source of unease.</li>
</ul>


The second wave of pandemic is important logic to drive up Fu Shou Yuan’s share price, but the peak value/lethality could be lower than first wave, leading to lower-than-expected demand.
Whether the second wave can "arrive as expected" may not depend on pandemic itself, but on "whether to let it happen",especially when China's making every effort to promote economic recovery.
Besides solid fundamentals/optimistic performance, hot market sentiment is very essential if Fu Shou Yuan (1448 HK)’s share price is to outperform. Policy changes are also a potential source of unease.


Fu Shou Yuan (1448.HK) - Some Points Worth the Attention

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)