In-depth research report bullish on Fosun International: leading in globalization, continuous growth in core business, steady increase in dividends

According to the VESYNC financial APP, "Fosun International (00656) continues to focus on core industries, optimize operational capabilities, increase performance certainty, improve cash flow stability, and is expected to continue to increase dividend payout ratio, with valuation expected to gradually recover." On August 5th, Fosun International Securities released a research report, analyzing the investment value of Fosun International in depth from four dimensions: core subsidiary performance, globalization and industrial operations, balance sheet repair, and dividend expectations, giving a "buy" rating with a target price of HKD 13 per share.

The report points out that after over 30 years of development, Fosun International has successfully implemented a strategy of "investment + operation", forming four major industrial sectors: health, happiness (consumption), prosperity (financial insurance), and intelligent manufacturing through globalization, diversified acquisitions, and industrial operations. In 2019, Fosun repositioned itself as an "innovation-driven family consumer industry group" and proposed a focus strategy at the beginning of 2020, starting to focus on deep industrial operations as a strategic priority, accelerating the divestment of non-core assets, improving financial indicators to effectively focus on core businesses, and strengthening light asset operational capabilities.

The report further analyzes the medium to long-term outlook, believing that four key logics will drive significant value recovery for Fosun International.

Firstly, core subsidiary performance and valuation are expected to gradually improve. Fosun International owns high-quality global assets in the pharmaceutical, consumer, and financial sectors. The core subsidiaries continue to deepen industrial operations, steadily increasing market share in their respective sectors. By 2023, Fosun Pharma, Yuyuan Stock, Fosun Tourism, and Fosun Portugal Insurance, the four core subsidiaries, are expected to contribute 72% of total revenue, ranking among the top in their industries, maintaining stable revenue and profit growth, and continuous dividend payouts. Some subsidiaries have been affected by macroeconomic and Hong Kong stock market conditions since the pandemic, and short-term profits have been affected by the drag of some investment project exits during market valuation decline. Currently, the stock price is under pressure, but the significant valuation recovery after optimizing the operations of listed subsidiaries will help boost Fosun International's valuation. Additionally, optimizations made by some subsidiaries in capital structure and other aspects will also help increase valuation. For example, in June 2024, Fosun Pharma announced the privatization of its subsidiary Fosun Hanlin through a merger.

Secondly, the increase in core capabilities such as globalization and industrial operations enhances performance stability and profit growth potential. Fosun International has outstanding globalization capabilities, continuously optimized industrial operational capabilities, and the ability to cooperate with resource providers. It has many successful experiences in industrial mergers and acquisitions and asset divestitures, supported by effective mechanisms in organizational management to ensure execution. The comprehensive competitiveness led by globalization and industrial operational capabilities enables Fosun to grasp macro policy directions, make timely strategic and tactical adjustments to ensure overall stable operations, enhance operations and performance in core industries, increase profit growth space, and seize unexpected opportunities. Fosun International's overseas business contributes nearly half of its revenue, demonstrating deep operational capabilities in globalization, expanding growth space, and hedging macro and regional risks. For example, Fosun Pharma's subsidiary Fosun Hanlin's independently developed biosimilar drug Hanquyou was approved for listing in the United States, becoming a "Chinese" monoclonal antibody biosimilar drug approved in China, the European Union, and the United States, and has been listed in over 40 countries and regions. Club Med, after being acquired by Fosun, quickly turned losses into profits and became a leading brand in global leisure resorts Yuyuan Stock's Laomiao Gold Jewelry brand has steadily maintained its market share in the top three of China's gold jewelry industry since 2019, thanks to its strong new product iterations and differentiated marketing capabilities.

Thirdly, continuous debt reduction and significant balance sheet repair support valuation improvement for Fosun International. Since 2021, Fosun International has been optimizing its capital and asset structure, reducing debt levels, continuously improving financial indicators, and significantly lowering leverage ratios. In May 2023, S&P Global revised Fosun's credit outlook from "negative" to "stable", and in May 2024, S&P confirmed Fosun's "stable" credit rating, acknowledging the improvement in Fosun's balance sheet. Currently, Fosun International's overseas bond yields due in 2025-2027 are in a favorable range of 8.5% to 9.5%, but the stock valuation has fallen to historical lows. It is expected that factors such as rating agency upgrades and steady overall revenue growth will gradually be recognized by equity investors, increasing the potential for valuation improvement.

Fourthly, effective execution of focused strategies brings opportunities for dividend increases beyond expectations. Fosun International's core assets are concentrated in leading growth and value companies in the industry, focusing on supporting core companies to achieve long-term strategic goals, promoting industrial development, complementing industries through mergers and acquisitions, and timely realizing value through investment exits to create excess capital returns for shareholders. The potential for revenue and profit improvement is still overlooked by the market. Meanwhile, Fosun optimizes the operations of its subsidiaries through internationalization and ecological empowerment, continuously building leading business sectors, maintaining the steady growth of core businesses, and increasing dividends for some mature businesses. In addition to providing investors with stable dividends, based on the historical 20% dividend ratio, Fosun has the ability to further increase the dividend ratio, providing shareholders with opportunities for higher-than-expected dividend returns in the future.

The research report also points out that in the first half of 2024, Fosun International is still negatively impacted by the macro environment, with short-term profit pressure expected. However, the gradual improvement in operating conditions and performance optimization of core assets brought about by focusing on industrial operations will serve as positive catalysts for the stock price.

The research report predicts that Fosun International's revenue growth rates for 2024/25/26 are 9.4%, 9.6%, and 8.6% respectively, while the net profit attributable to shareholders will increase by 46.6%, 81.9%, and 55.0% respectively. Based on the sum-of-the-parts valuation method, the target price is HKD 13 per share, corresponding to 0.7x 2024e P/B, with a "buy" rating