Performance disaster, "Funeral First Stock" FU SHOU YUAN plunges nearly 14%!

On August 26th (Monday), as of the time of publication, Fu Shou Yuan (01448.HK) experienced a significant gap-down of 13.83%, leaving many investors astonished. Currently, the company is trading at HKD 4.05 per share, with a market value of HKD 9.395 billion, falling below the hundred billion market value mark.

Fu Shou Yuan is considered the "number one stock in the funeral industry" and was established in 1994, with a deep-rooted presence in the funeral industry for 30 years.

In recent years, with the rapid expansion of urban population and a sudden increase in aging pressure, the supply of cemeteries has not expanded synchronously. Amid the supply-demand imbalance, cemetery prices have been on the rise, leading to the emergence of many instances of "speculative cemetery" activities.

"The high cost of cemetery plots" has frequently trended on social media, transforming cemeteries into an "alternative real estate market." This trend has propelled Fu Shou Yuan's performance to soar, garnering significant attention from institutional investors.

However, on August 23rd, Fu Shou Yuan announced its interim performance, revealing that in the first half of 2024, the company achieved revenue of approximately HKD 11.00 billion, significantly lower than the HKD 15.25 billion in the same period last year, marking a year-on-year decline of 27.8%. The company also recorded a net profit attributable to equity holders of approximately HKD 2.99 billion in the first half of the year, down significantly by about 35.7% compared to approximately HKD 4.65 billion in the same period last year.

Fu Shou Yuan's performance setback came as a "surprise" to many investors, serving as the main culprit for today's sharp decline in the company's stock price.

The company explained that with the normalization of the epidemic last year, accumulated and deferred funeral consumption demand was rapidly released, leading to a relatively high performance base.

Data shows that in 2023, Fu Shou Yuan achieved revenue of HKD 26.28 billion, a 21.0% year-on-year increase, reaching a historical high. The company also achieved a net profit attributable to equity holders of HKD 7.91 billion, a 20.1% year-on-year increase. Among them, cemetery services contributed revenue of approximately HKD 21.65 billion, accounting for over 80% of revenue, with a year-on-year growth of about 23.8%, driving the overall performance growth of the company.

On the other hand, Fu Shou Yuan stated that in the first half of the year, influenced by the overall economic environment, customer consumption behavior tended to be cautious, putting pressure on performance.

Data indicates that in the first half of this year, the company's operating cemetery plot sales revenue decreased by 31.7% year-on-year, with sales volume dropping by 31.5% and the average selling price decreasing by 0.2 percentage points, resulting in a simultaneous decline in quantity and price. In the first half of the year, the operating profit margin of the company's cemetery services also decreased from 62.3% in the same period last year to 54.4%.

Previously, some investors were concerned that the trend of weak consumption might spread to the funeral industry, signaling a subtle shift in the industry's investment logic. Looking at the above data, it seems to confirm this concern However, some opinions believe that FU SHOU YUAN's moat is solid, the company has always followed a mid-to-high-end route, targeting the affluent class, and its profitability is still guaranteed. In addition, the regional strength of cemetery sales is strong. Once a layout and brand are established in a certain region, it will not be easily replaced during the sales period. The current performance "thunderstorm" may be a short-term phenomenon, and the company is still worth paying attention to.

In addition to the performance announcement, the company announced a proposed interim dividend of HKD 6.38 per share.

After the release of last year's annual report, FU SHOU YUAN decided to distribute a final dividend of HKD 6.86 per share and a special dividend of HKD 21.39 per share, along with an interim dividend of HKD 9.06 per share. With a cumulative dividend of HKD 37.31 per share by 2023, FU SHOU YUAN continues to maintain its tradition of high dividends, offering considerable returns for long-term investors