20150107-杰富瑞-Insurance_Expansion_to_Support_Future_Investment_13页_567kb

Fosun Intl. (656 HK) Summary

Core Content

Fosun Intl. is a diversified conglomerate that has been actively expanding its investment portfolio through strategic acquisitions and leveraging its insurance business to generate low-cost capital. The company's investment strategy focuses on overseas markets, particularly in consumer, hotel, and telecommunications sectors, to capture the benefits of China's urbanization and industrial upgrading. Fosun's financial performance and valuation have improved due to these strategic moves, leading to a revised price target and a "Buy" recommendation.

Main Highlights

• Insurance Business as a Capital Source: Fosun has significantly expanded its investable assets through acquisitions of insurance companies such as Fosun Insurance Portugal and Ironshore, increasing the total to Rmb146bn in Nov 2014. The insurance business provides low-cost capital with a capital cost of 2.3%-2.6%, comparable to the ~2% one-year US$ loan rate in Hong Kong.

• Overseas Investment Growth: Fosun has been increasing its overseas investments, including the acquisition of MIG (US$433mn) and becoming the sole bidder for Club Med at €24.6/sh. These investments are expected to enhance the company's Net Asset Value (NAV) by HK$0.9/sh once the Club Med acquisition is completed.

• Alibaba Investment and Returns: Fosun's Portuguese insurance arm, Fidelidade, invested US$100mn in Alibaba's IPO, which generated US$48mn in profits, or ~4.9% return on its investment portfolio. This has contributed positively to the company's investment returns.

• Listing of Hainan Mining: Hainan Mining, 54% owned by Fosun, was listed on the Shanghai Exchange with an IPO price of Rmb10.34/sh. The stock rose nearly 60% by Jan 6, 2015, contributing HK$2.97/sh to Fosun's NAV.

• Asset Management Expansion: Fosun's asset management business has grown rapidly, with AUM reaching Rmb33.9bn by the end of 2014. The company has expanded its investment scope to include pre-IPO projects, private equity, and various asset management platforms.

• Operational Business Stability: Operational business remains a key revenue driver, with Fosun Pharma and Forte Land showing strong performance. Fosun Pharma achieved a 36.3% YoY growth in core earnings, while Forte Land reported property presales of Rmb13bn by the end of Oct 2014.

Key Information

• Price Target: Raised to HK$13.1 from HK$11.0, implying a 27% discount to NAV, in line with the historical average.
• Valuation Metrics:
  • For 2014E and 2015E, the company's valuation at 9.7x/8.7x PE is considered undemanding compared to industry peers.
  • The current share price is HK$10.80, with a 52-week range of HK$11.12 - HK$7.16.
• NAV Breakdown:
  • Adjusted NAV increased to HK$17.9/sh from HK$13.7/sh.
  • The company's NAV includes contributions from operational business, pharmaceuticals, resources/energy, property, and PE investments.
  • The total NAV is estimated at HK$123,826mn, with a book value of HK$17.89/sh.
• Key Risks:
  • Execution risk for investment projects.
  • Lower-than-expected investment gains.
  • Severe global economic slowdown.

Investment Strategy

Fosun's investment model is based on "Combing China's growth momentum with global resources." The company is expanding its investment portfolio by acquiring insurance companies and investing in overseas assets, with a focus on high return and low volatility. It also emphasizes the integration of its insurance and investment arms to enhance overall performance.

Financial Summary

Market Data

Strategic Acquisitions and Investments

• Fosun Insurance Portugal: Acquired in 1H2014 for €1bn, contributing €10bn in investable assets.
• Ironshore: Acquired, contributing Rmb27.2bn in investable assets.
• MIG: Acquired in Dec 2014 for US$433mn.
• ESS: Acquired as part of Fosun's expansion in Portugal.
• Club Med: Sole bidder at €24.6/sh, expected to boost NAV by HK$0.9/sh.
• Bund Finance Centre (BFC): Approved for pre-sale, contributing HK$1.01/sh to NAV in 2015.

Valuation Comparison

Conclusion

Fosun Intl. is positioned for continued growth through its insurance-oriented financing and China-focused investment strategy. The company has demonstrated strong performance in its investment portfolio, with notable gains from the Club Med acquisition and the listing of Hainan Mining. The revised price target of HK$13.1 reflects the company's improved NAV and strategic advantages, supporting the "Buy" recommendation.