Securities firms optimistic about Fosun’s growth path: increase profits, reduce leverage | 03.09.24

HONG KONG SAR – Media OutReach Newswire – September 3, 2024 – Following the publication of Fosun International (00656.HK)’s interim results for FY 2024, Nomura Orient International Securities (“Nomura”) and Kaiyuan Securities have both published research reports, reaffirming their “overweight” and “buy” ratings respectively. They believe that Fosun International’s strategic focus on its core businesses has delivered significant results, with resilient earnings, increasingly healthy financial indicators and stable growth driven by innovation, asset-light operations and globalization.

In the first half of 2024, Fosun’s revenue continued to grow and reached RMB97.84 billion. The industrial operating profit continued to grow and reached RMB3.47 billion, and the profit attributable to the owners of the parent company was RMB720 million. In addition, Fosun continued to optimize its asset portfolio, reduce leverage and maintain ample cash reserves, resulting in a healthy financial position. At the end of the reporting period, the Group’s adjusted total debt-to-capital ratio was 50.2%, a downward trend since 2020. In June 2024, the international rating agency S&P fully recognized the effectiveness of Fosun’s financial strategy and confirmed its rating outlook as “stable”.

Nomura believes that Fosun’s interim results were in line with expectations and that the decline in profit attributable to the owner of the parent company was mainly due to one-off losses from the sale of non-core assets, which also reflects the company’s efforts to pursue healthier development. Both Nomura and Kaiyuan Securities are optimistic about the solid execution of Fosun’s strategy to focus on its core businesses. In the first half of the year, the four core subsidiaries, namely Yuyuan, Fosun Pharma, Fosun Insurance Portugal and Fosun Tourism Group, achieved total revenues of RMB72.17 billion, maintaining year-on-year growth and accounting for 74% of the group’s total revenues.

Furthermore, Nomura praised Fosun’s steady reduction in leverage, while Kaiyuan Securities pointed out that Fosun’s balance sheet showed balanced development and increasingly healthy financial indicators. Based on their analysis, Nomura raised its price target on Fosun International to HK$5.64, maintaining an “overweight” rating, while Kaiyuan Securities also maintained a “buy” rating.

It is worth mentioning that Fosun’s management clearly outlined the company’s future financial strategy during the presentation of the 2024 interim results. On the one hand, Fosun will resolutely focus on its core businesses and concentrate resources on developing businesses with the potential to become market leaders. On the other hand, the company will continue to promote asset-light businesses and further divest asset-heavy projects that do not have financing advantages. The management stated that in the next few years, Fosun will continue to steadily increase the share of overseas revenue, reduce interest-bearing debt to about RMB 60 billion, increase industrial operating profit to more than RMB 10 billion, gradually increase the dividend payout ratio, and continuously improve the credit rating to “investment grade”.

Analysts believe that Fosun’s clear financial strategic goals are closely aligned with the corporate strategy that has been continuously promoted in recent years, providing investors with effective guidance. As these goals are gradually realized, Fosun’s valuation and performance in the secondary market are expected to show a strong recovery and return to a reasonable level.

Data shows that Fosun International’s adjusted NAV as of June 30, 2024 was HK$17.4 per share, indicating a significant undervaluation compared to its current share price on the Hong Kong stock market.

In addition, the popularity of high dividend investment strategies has continued to rise this year, making Fosun International’s dividends particularly remarkable. According to statistics, Fosun International has paid out a cumulative dividend of HK$25.6 billion since its listing 17 years ago, and the dividend payout ratio has gradually increased to more than 20% over the past five years. Management has clearly stated that it will continue to increase the dividend payout ratio, making Fosun more attractive to investors with its stable dividend advantage in the long term.

Analysts pointed out that the interim results showed that Fosun’s businesses are more focused and its financial indicators are healthier overall, indicating a more stable outlook for future earnings. Globalization, innovation and the recently emphasized asset-light operational capabilities will jointly drive a new round of growth for Fosun. As such, both Nomura and Kaiyuan Securities gave positive evaluations in their reports.

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News source: Fosun International