Securities Firms Bullish on Fosun's Growth Path: Boosting Profits, Reducing Leverage
- Written by Daily Sun
They believe that Fosun International's strategic focus on its core businesses has yielded significant results, with revenue demonstrating resilience, 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, reaching RMB97.84 billion. Industrial operation profit maintained growth, reaching RMB3.47 billion, and profit attributable to owners of the parent was RMB720 million. In addition, Fosun continued to optimize its asset portfolio, reduce leverage, and maintain ample cash reserves, resulting in a sound financial position. As of the end of the reporting period, the Group's adjusted total debt-to-capital ratio was 50.2%, maintaining a downward trend since 2020. In June 2024, the international rating agency S&P fully recognized the effectiveness of Fosun's financial strategy and affirmed its rating outlook as "stable".
Nomura believes that Fosun's interim results were in line with expectations, and the decline in profit attributable to owner of the parent was mainly due to one-off losses from the disposal of non-core assets, which also reflects the company's efforts to pursue healthier development. Both Nomura and Kaiyuan Securities are optimistic about the firm execution of Fosun's strategy of focusing 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 a total revenue of RMB72.17 billion, maintaining year-on-year growth and accounting for 74% of the Group's total revenue.
Furthermore, Nomura praised Fosun's steady decline in leverage, while Kaiyuan Securities pointed out that Fosun's balance sheet demonstrated balanced development and increasingly healthy financial indicators. Based on their analysis, Nomura raised its target price for Fosun International to HK$5.64, maintaining its "overweight" rating, while Kaiyuan Securities also maintained its "buy" rating.
It is worth noting that Fosun's management clearly stated the company's future financial strategy at the 2024 interim results presentation. On the one hand, Fosun will steadfastly focus on its core businesses and concentrate resources on developing companies with potential to become industry leaders. On the other hand, it will continue to promote asset-light operations and further divest from asset-heavy projects that lack funding advantages. Management stated that in the next few years, Fosun will continue to steadily increase the proportion of overseas revenue, reduce interest-bearing debt to approximately RMB60 billion, boost industrial operation profit to over RMB10 billion, gradually increase the dividend payout ratio, and continuously improve credit rating to "investment grade".
Analysts believe that Fosun's clear financial strategic goals align closely with its business strategy that has been continuously promoted in recent years, providing effective guidance for investors. As these goals are gradually realized, Fosun's valuation and performance in the secondary market are expected to see a strong recovery and return to a reasonable level.
Data shows that as of 30 June 2024, Fosun International's adjusted NAV was HK$17.4 per share, indicating a significant undervaluation compared to its current share price in 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 noteworthy. According to statistics, Fosun International has distributed a cumulative dividend of HK$25.6 billion since its listing 17 years ago, and its dividend payout ratio has gradually increased to over 20% in the past five years. Management has clearly stated it will continue to increase the dividend payout ratio, enhancing Fosun's appeal to investors with its long-term stable dividend advantage.
Analysts pointed out that overall, the interim results revealed that Fosun's businesses are more focused and its financial indicators are more healthy, suggesting a more stable outlook for future profits. Globalization, innovation, and the recently highlighted asset-light operation 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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