Against the backdrop of increased turbulence in the international situation and weak recovery of the world economy, the Chinese economy has shown strong resilience and great potential. Since last year, a series of measures to promote the growth of private economic development have also been implemented and effective. With the support of national policy, one of them is Fosun International (00656), a large private enterprise with national influence and business all over the world. Recently, there has been frequent positive news.
In addition to announcing steady and solid results at the end of March, Fosun International recently announced the sale of Belgian insurance company Ageas and boosting the listing of Portugal's leading private healthcare service provider Luz Saúde, and the company's business strategy of investing in an appropriate investment continues to be highlighted. Furthermore, the recent strategic cooperation with the Shenzhen Municipal Government is also viewed by the market as a “win-win situation between government and enterprise” led by scientific and technological innovation and globalization, all of which are worthy of investors' confidence in Fosun International's future growth.
The performance is steady and solid, and the basic orientation is good
Specifically, performance has always been the best “litmus test” in the secondary market. The 2023 financial report has undoubtedly become the best verification that Fosun International is deeply involved in industrial operations and is financially stable, and is worth holding for a long time by investors. Looking at the 2023 results, Fosun achieved total revenue of 198.2 billion yuan (RMB, same unit), an increase of 8.6% over the previous year; net profit to mother was 1.38 billion yuan, a sharp increase over the previous year. The total revenue of the four core subsidiaries Yuyuan Co., Ltd., Fosun Pharmaceuticals, Fosun Portugal Insurance, and Fosun Travel & Culture reached 142.69 billion yuan, an increase of 8% over the previous year, accounting for 72% of total revenue.
In 2023, in addition to the fundamental and resilient growth of Fosun International's performance in the face of market adversity, what is even more rare is that as a listed company that can maintain a stable dividend payout rate, it has maintained a dividend rate of 20% over the years, and has continued to give back to shareholders for 17 years. The cumulative cash dividend reached HK$25.6 billion. By the end of 2023, Fosun's adjusted NAV was HK$19 per share, which is a good discount compared to the current closing price of HK$4.27 (April 23). This is compounded by recent frequent positive news about the company. This stage is a good time to allocate its bottom layout.
Investment and withdrawal balance, value release
Guo Guangchang, chairman of Fosun International, said in a letter to shareholders in 2024, “Fosun's industrial operation strategy is gradually shifting from 'prospecting' and 'prospecting' around the world to 'deep digging' and 'good mining'. We continue to cultivate in proven industries, enhance certainty, and make steady profit growth the core goal of future Fosun operations.”
Zhitong Finance believes that this goal is also reflected in Fosun's emphasis in recent years on maintaining strategic strength and strictly implementing the degree of progress and decline in assets. On the one hand, it has withdrawn some non-core and non-strategic assets in an orderly manner, and on the other hand, actively promoted the listing of its high-quality assets to release value. Fosun's “orderly progress and retreat” to achieve a “balance of investment and withdrawal” should largely make the Group's financial situation healthier, and also provide reserves for “deep mining” focusing on core industries, further consolidating Fosun's core industry puzzle.
Taking the recent market focus on Fosun's sale of Belgian insurance company Ageas and boosting the listing of Portugal's leading private healthcare service provider Luz Saúde as an example, they all fully reflect Fosun's successful business strategy of achieving balance between investment and withdrawal, and orderly progress and retreat. On April 10, Fosun's Portuguese insurance company Fidelidade announced that its holding company Luz Saúde has notified the market of its public offering plan, plans to raise about 100 million euros of capital by issuing new shares to domestic and foreign institutional investors, and will apply for listing on the Lisbon Euronext Exchange. On April 14, Fosun International announced the sale of its Belgian insurance company Ageas (Ageas) shares to BNP Paribas (BNP Paribas), accounting for no more than 8.19% of the total number of shares issued by the target company.
Judging from Fosun's strategic position as an “innovation-driven global household consumer industry group,” it focuses on the main circuit of the household consumer industry. One important goal is to achieve predictable and stable profits by improving operational capabilities. When Fosun sells Ageas shares, it will receive a transaction consideration of about 626 million to 670 million euros, and is expected to achieve an unaudited pre-tax profit of about 60 million to 65 million euros. This not only helps the Group to streamline and optimize its investment portfolio, but also enhances its financial performance and further strengthens its financial base.
In addition to adopting an appropriate exit mechanism, Fosun has been actively promoting member companies to connect with the capital market, enhance overall asset liquidity through IPOs and other methods, and release corporate investment value. Regarding the listing of Luz Saúde, Fosun believes that this move will not only raise Luz Saúde's corporate governance level and help its continued expansion and long-term growth in the healthcare sector, but also fulfill its commitments in the Portuguese Healthcare Ecological Strategic Plan through synergy between Luz Saúde and Fidelidade in the future.
“Embrace light and balance” to enhance operational capabilities
After more than 30 years of development, Fosun has accumulated deep operating capabilities. Through real estate securitization and the exit of bulk assets, while promoting industrial funds to help the industry grow, the results of asset-light operations have been remarkable.
Take Fosun Travel & Entertainment as an example. In 2023, Fosun Travel & Tourism leveraged its operational strengths, and global performance fully recovered. Annual revenue reached RMB 17.15 billion, an increase of 24.5% over the previous year. Profit attributable to shareholders was RMB 310 million, turning a loss into a profit. In 2023, it continued to optimize its revenue structure, with tourism operations contributing more than 93%. With the steady improvement of asset-light operating capabilities, Fosun Travel and Culture's new product line continues to be launched, and it is expected that the Chinese market will seize the opportunity to open up a new urban vacation circuit. In 2023, Club Med will open two new Mediterranean Daylight Ark resorts.
Guo Guangchang pointed out at this year's results conference that in the future, Fosun will pay more attention to asset-light operation capabilities, seize the opportunities of asset-light operations with a “balance and balance” strategy, and will also continue to expand its “circle of friends”, strengthen in-depth cooperation with local governments, state-owned enterprise platforms and more partners, and enhance operational capabilities through complementary advantages and win-win cooperation.
More flexible and efficient asset-light operation capabilities are expected to enable Fosun to continuously broaden its growth boundaries, lay a solid foundation for the company to go through a longer cycle, and make it possible for performance to rise more points.
Focus on the “deep mining” strategy, adhering to the two core growth engines of “globalization” and “innovation”
In 2023, Fosun will continue to focus on “deep mining”, deeply cultivate global operations, and have a deep industrial layout in more than 35 countries and regions. In 2023, Fosun's overseas revenue share reached 45%, with a ten-year compound growth rate of 55%. For Fosun, globalization is not only a “two-way movement” between the world and China, but also extends to the endogenous development of ecological enterprises at home and abroad, encouraging ecological enterprises to actively expand markets outside of the home and abroad in their respective fields.
The Zhitong Finance App learned that Han Quyou, independently developed and produced by Fosun Pharmaceutical's biopharmaceutical platform Fuhong Hanlin, has been approved for listing in more than 40 countries and regions, making it the most domestically produced biosimilar in approved countries and regions; its first innovative H drug, Hans, was approved for marketing in Indonesia, making it the first domestic anti-PD-1 monoclonal antibody to be successfully marketed in Southeast Asian countries. Club Med, a subsidiary of Fosun Travel & Culture, is marketing in more than 40 countries and regions on six continents and operates 68 resorts; a national intangible heritage project, the Yuyuan Garden Lantern Festival, which has been held continuously for 29 years, went to sea for the first time, attracting nearly 200,000 local visitors from Paris. Fosun Portugal Insurance continues to expand in extraterritorial markets such as South America and Africa. Total premiums for international business reached 1.70 billion euros, an increase of 10.6% over the previous year.
Relying on long-term accumulated science and innovation capabilities, Fosun's “world's first” and “China's first” achievements continue to emerge. Argesun, a second-generation injectable artemisunate independently developed by Fosun Pharmaceutical for the treatment of malaria, became the first “one-step artesunate formulation injection” pre-certified by the World Health Organization. Han Quyou independently developed and produced by Fuhong Hanlin is the first Chinese and European single-batch biosimilar drug, and has been approved for marketing in more than 40 countries and regions; the self-developed Hans form is the world's first targeted PD-1 monoclonal antibody approved for first-line treatment of broad-stage small cell lung cancer. Yikaida developed by Fosun Kate is the first CAR-T cell therapy product approved for marketing in China, bringing more treatment options and hope for treatment to Chinese lymphoma patients. The intuitive Fosun domestic Da Vinci Xi surgical system was successfully approved by the State Drug Administration and put into production and marketing, achieving “made in China, joint research and development, and global sales”.
By 2024, Fosun continued to focus on its main business, continuously improve its ability to innovate, and was recognized at a higher level. On April 12, the Shenzhen Municipal Government and Fosun signed a strategic cooperation framework agreement. The two sides gathered high-quality innovative resources to further strengthen cooperation in biomedicine, cultural and sports tourism, fashion consumption, etc. In March, Fosun Pharmaceutical and other seven investors, including the Shenzhen Guidance Fund, plan to jointly fund the establishment of a RMB 5 billion biomedical industry fund to raise all of the capital raised to invest in biomedicine, cells, and genes. Rehabilitation Capital, a subsidiary of Fosun Pharmaceutical, has passed a public selection bid in Shenzhen to exclusively manage the fund.
It is easy to see that, relying on long-term accumulated innovation and global operation capabilities, Fosun is building a competitive moat in various advantageous industries such as health, tourism and culture to ensure stable future profit growth, thus promoting the Group's high-quality and sustainable long-term development.
Financially sound, leading rating banks are optimistic about Fosun's value
Faced with the complex and changing global economic situation, Fosun has taken positive steps to continuously optimize capital and asset structures, broaden financing channels, reduce the size of debt, and provide solid support for the implementation of the “deep mining” strategy, which has now paid off.
In 2023, Fosun continued to optimize its debt structure, emphasized the importance of debt reduction and deleveraging, and implemented this strategy at the subsidiary level. By the end of 2023, the Group's consolidated reporting level had achieved a cash return of approximately RMB 40 billion; interest-bearing debt at the Group consolidated statement level decreased by RMB 15 billion compared to the end of 2022, interest-bearing debt at the group level decreased by RMB 9.2 billion compared to the end of 2022, and total consolidated and group-level debt continued to decline. The Group's total debt to total capital ratio was 50.4%, down 2.9 percentage points from the end of 2022. The Group's cash and bank balances and term deposits reached RMB92.46 billion, and the financial position was sound.
In May 2023, the international rating agency S&P raised Fosun's rating outlook to “stable”, confirming Fosun's financial strategy and sustainability of future development. After the release of annual results, domestic and foreign institutions such as Citibank, UBS, Fangzheng, Open Source, and Huaxi Securities published research reports. They were optimistic that Fosun would firmly implement the business-focused strategy and achieve investment and withdrawal balance, and all gave them a “buy” or “recommended” rating. UBS said in its report that as Fosun continues to implement the “slimming and fitness” strategy, the profit situation is expected to improve further. In the future, dividends to shareholders will continue to increase, and Fosun International will be given a target price of HK$6.30, which is expected to increase by about 57%.
According to the Zhitong Finance App, with a “deep mining” strategy focusing on the core business, an asset optimization strategy with balanced investment and withdrawal, and a sound financial situation, Fosun International is not only able to better cope with uncertainty and grow against the cycle; at present, the group has completed its core business strategy focus. I believe that with the support of the company's good fundamentals, Fosun International's future growth potential can be expected and is worthy of investors' long-term attention.