Fushouyuan Stock Analysis

 STOCK ANALYSIS

FU SHOU YUAN

福壽園

GROUP MSFDC

WEI YIJING, 11550862223

PENG WENTING, 1155087086

LI LIMI, 1155055561

ZHAO YICHANG 1155080765

CHEN NAN 1155081293

Catalogue

Company Profile        

Industry overview        

Peers analysis        

Investment summary        

Valuation and Recommendation        

Investment Risk Analysis        

Appendix        

Company Profile

Started in 1994, FSY is the largest provider, the leader and integrator of the burial and funeral care service industry in China. It aims at providing premium burial service and funeral service. In 2015, the burial service constitutes the 86.7% of the revenue and the funeral service contributes 12.6%（as shown in EXHIBIT 1）. The company has a high gross profit rate at 77.6% and net profit rate is 32.96%.

With M&A, FSY expands quickly. In 2013，FSY had only 6 cemeteries and 5 funeral facilities. Now, it has business in 15 cities in 10 provinces in PRC, including 14 cemeteries and 9 funeral facilities. Besides, FSY invested in environment friendly cremator project, which is on the trial production stage and achieved 9.2 million profits in 2015. FSY is a social responsible company and devotes itself to many public welfare activities.

Compared with its peers, FSY has two main characteristics:

1.Beautiful scenery in cemetery and personalized services

Unlike traditional cemeteries, FSY cemeteries have beautiful scenery and provide personalized service. The cemeteries are all beautifully decorated and the environment nearby is carefully designed and maintained like a park. The cemetery in Shanghai is even awarded as top 10 cemeteries in the world.

Apart from traditional style of tomb and cemeteries, the company also provides the customized and artistic tombs, which constitute 59.5% of the total sale. People can design the style of cemetery in a way they want. Those personalized services have attracted many people to see the cemetery and design for their passed-away beloved ones.

2. Celebrity charm

FSY specially designs park in a memorial way to memorize our ancestors and passed-away people. In one of the cemetery of FSY in Shanghai, the cemetery has a memorial museum that stores the first piano of a famous pianist He Lvding, and the printer that used by the famous judge during the trial of the Second World War. The innovated way of designing the cemetery in as a memorial park has totally changed people’s stereotype of cemetery, which is deserted and even scary.

Industry overview

The burial and funeral care service industry can be mainly categorized into the four segments:

1) Funeral services: It includes (i) the remains handling, transportation and treatments (including body make-up and dressing), (ii) the conducting of funeral rites. 2) Remains disposal: It refers to the cremation services. 3) Burial services: It refers to burial services, such as tomb sales, design and planning of tombs. 4) Other Product Sales and Services: It refers to funeral services’ product sales.

However, the cremation service is solely provided by government entities while in other segmentations of the industry, government is still in the dominant position but also allow the private entities to come in.

The largest segmentation of the industry is burial service, which constitutes nearly 60% of the market. According to Euromonitor International, the industry has a CAGR of 13.1% between 2008 and 2012, and is estimated to grow at an even faster CAGR of 17.0% between 2013 and 2017 due to favorable long-term factors (EXHIBIT2).

Key drivers of the business growth

1) Aging population: death rate is increasing

As a country with the largest population and a growing aging population, the burial and funeral care service industry in PRC has a large market potential. The demand for the burial and funeral care service is expected to growth in the following years. The proportion of the population of China above 65 years has been growing steadily, reaching 10.5% of total population in 2015. Because of the aging population, the death rate in recent 10 years also increases, from 6.51% in 2005 to 7.16% in 2014. (EXHIBIT 3)

2) Urbanization: Cremation rate will increase

In the urban area of PRC, cremation is the way that residences mostly choose. Although it may not increase as the Ministry of Civil Affairs said in a report in 2014 that the cremation rate was expected to reach nearly 100%. With the urban population growing, the cremation rate will demonstrate an upward trend. (EXHIBIT 4)

3) Upgraded Spending: Increased expectation for Premium Services  

With a constant rise in income levels, there are greater expectations for an elaborate funeral. And the demand for death care services become more personalized. In 2008-2012, the CAGR for the average spending per cremation is 12% according to Euromonitor (EXHIBIT 5)

4) The marketization of the burial and funeral care services industry

In recent years, the government is gradually deregulating and the PPP (Public-Private Partnership) mode becomes popular. Government welcomes the private capital to join this industry because of the shortage of fiscal budget. Under the current circumstance, the burial and funeral care services industry are faced with more opportunities.

Peers analysis

Although burial&funeral service industry has high profitability and promising prospects, it is relatively a narrow industry with high entrance requirement and thus limited participants, which means less competition for FSY.

To elaborate, FSY estimates that over 70% of cemetery market is owned by local governments and state-owned units. Among the 30% market that are not state-owned, 27% are owned by family or private companies and only 3% are run by organized enterprises. In addition, the industry is quite scattered across the country and most providers are small in scale with business limited to local area. That makes FSY outstanding in the industry since it’s large in scale and one of a few companies with multi base across the nation.  

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