SCI - Fu Shou Yuan: Replicating The Service Corp Playbook In China
2024-04-04 13:34:49 ET
Summary
- Fu Shou Yuan is emerging as the dominant Chinese death care & funeral company at a time when the demographics of China could not be more advantageous for the industry.
- The company trades at about 13x trailing earnings while profits grew over 20% in fiscal year 2023, giving it a PEG ratio below 1.
- It has a fortress balance sheet with over 25% of its current market cap covered by net cash. The EV/EBITDA multiple of 5.7 is a statistical outlier amongst funeral peers.
- The business is inconceivably profitable and has averaged 80% plus gross profit margins and 30% plus Net margins for years on end.
- The company has large organic but even larger inorganic opportunities to grow in the future, potentially mirroring a well-documented success story from the US.
Introduction
Fu Shou Yuan ( OTCPK:FSHUF ) is the leading funeral company in China and has just released its Fiscal Year 2023 financial results, which confirm 20% profit growth for the year. As such, the company resumes a decade-long journey of very profitable growth with only one hiccup year of falling revenues since its IPO. The valuation of the stock, being caught up in an anti-China investor sentiment of almost epic proportions, does not even remotely reflect the underlying business' quality and prospects. In this analysis, I want to outline why I think that Fu Shou Yuan is a true diamond in the dirt within the most hated asset class right now, namely Chinese equities.
Note: The ticker covered on Seeking Alpha is not Fu Shou Yuan's primary listing. For liquidity reasons, the domestic listing on the Hong Kong Stock Exchange should be considered....
Fu Shou Yuan: Replicating The Service Corp Playbook In China