On 20 January 2023, Fosun International Limited (Fosun International or Fosun, HKG: 0656) issued a profit warning announcement on the Hong Kong Stock Exchange, mentioning that based on the information available to the Board and the latest unaudited consolidated management accounts of the Group for the year ended 31 December 2022, Fosun International’s revenue in 2022 is expected to increase by approximately 10% compared to that of 2021. However, due to the recurrent outbreak of COVID-19 pandemic in 2022 and the turmoil and downturn of the international capital markets, which resulted to an increase in business costs and an increase in floating losses in secondary capital market investment, Fosun International’s overall industry operations and industrial investment have been affected to varying degrees, thus the profit attributable to owners of the parent in 2022 is expected to be not more than approximately RMB2 billion.
The announcement also pointed out that with the gradual return to normalization of international trade and commerce in 2023, the Company’s management expects to see recovery of its businesses. Looking ahead, the Company will further focus on the family-oriented consumer industry and continue to strengthen its global operations to provide quality products and services to families worldwide.
Market analyst believes that as the “one-off” negative impact of the external environment clears, Fosun’s continuous focus on the family-oriented consumer sector will usher in an important period of opportunity for business rebound in 2023. Since the beginning of the year, Fosun’s main businesses centering on household consumption, such as Health, Happiness, and Wealth, have shown signs of strong recovery. It is worth noting that Fosun’s forward-looking efforts in the anti-epidemic field have gradually borne fruit.
The two flagships of Fosun’s Happiness segment, Fosun Tourism Group and Yuyuan, and other businesses have shown strong signs of recovery. According to public information, when the domestic tourism industry suffered a huge setback in 2022, Fosun Tourism Group still stood firm to build global presence and opened seven new Club Med resorts throughout the year. According to market sources, Club Med’s global bookings in the first half of 2023 have greatly exceeded the same period in 2019 before the pandemic. During the 2023 New Year holiday period, Atlantis Sanya, FOLIDAY Town Lijiang and other businesses in China all performed better than their respective pre-pandemic levels, and many Club Med resorts in China recorded close to 100% occupancy. During the 2023 New Year holiday period, the 2023 Yuyuan Garden Lantern Festival in the Grand Yuyuan attracted a large number of tourists. It is expected that the Spring Festival will further unleash consumption vitality.
Taking the Health segment as another example, Fosun’s anti-epidemic “vaccine and drug” products have attracted great attention from the market. On 19 December 2022, COMIRNATY(R), including the monovalent COVID-19 mRNA vaccine (BNT162b2) and the bivalent vaccine which can protect against the Omicron variant, was officially registered as a drug/product (biological product) in Hong Kong SAR. The self-paid vaccination service of COMIRNATY(R) bivalent vaccine was launched in Hong Kong SAR and vaccination is open to people including Mainland Chinese residents starting from 6 January 2023. After the self-paid vaccination service of COMIRNATY(R) monovalent COVID-19 mRNA vaccine has opened for non-local residents in Macau SAR last year, the COMIRNATY(R) bivalent vaccine was approved by Macao SAR as a regular imported vaccine on 20 January 2023, and people in need may receive a booster dose with prescription. As regards Azvudine, the oral medication for COVID-19, it is now included in the medical insurance scheme in 31 provinces, autonomous regions, and direct-administered municipalities across the country. In addition to tertiary hospitals and secondary hospitals, Azvudine has gradually covered grassroots medical institutions in many provinces. The accessibility of Azvudine has been greatly enhanced, helping the vast areas build a barrier against severe cases.
As Guo Guangchang, Chairman of Fosun International, mentioned in his 2023 New Year’s message, despite the headwinds of anti-globalization in 2022, Fosun is still a firm practitioner of globalization. In 2022, COMIRNATY(R) COVID-19 mRNA vaccine continued to provide an anti-epidemic barrier for Hong Kong SAR, Macao SAR and the Taiwan region; Club Med opened new resorts; Lanvin Group was successfully listed on the New York Stock Exchange. In the face of uncertainties, Fosun remained committed to technology and innovation in order to weather market cycles. HANQUYOU, independently developed by Henlius, was successfully launched in Australia after entering the European Union market; the registration application in the Chinese Mainland for the new indication of Yi Kai Da, China’s first CAR-T cell therapy was officially accepted. Fosun attaches great importance to its development. No matter how policies and markets change, Fosun will always devote its best efforts.
Fosun’s solid fundamentals and recovery potential have been widely recognized by financial institutions and investors. On 16 January 2023, Shanghai Fosun High Technology (Group) Co., Ltd. (“Fosun High Technology”), the domestic operating entity of Fosun International, received a RMB12 billion syndicated loan from eight domestic banks. This is the largest private enterprise loan led by five major state-owned banks in cooperation with policy banks and joint-stock banks since the Central Economic Work Conference explicitly proposed in December 2022 to encourage and support the development of the private economy and private enterprises. Moreover, Fosun High Technology successfully completed bookbuilding for the RMB1 billion super & short-term commercial paper on 13 January 2023.
Fosun’s financing channels have been further expanded, and the financing costs have been further reduced, consolidating liquidity support for its business recovery. Recently, international rating agency S&P Global Ratings, and investment banks including Morgan Stanley and Daiwa Capital Markets have published research reports, expressing their optimism on Fosun.
On 17 January 2023, S&P Global Ratings pointed out in a report that Fosun International’s newly signed syndicate loan will largely cover onshore bonds due within a year. Fosun International’s total debt at the holding company level could drop by 15%-25% in 2023 as the company continues to dispose assets and pay down matured bonds, thereby further improving its liquidity. S&P Global Ratings also noted that Fosun High Technology’s successful issuance of the super & short-term commercial paper was Fosun’s first issuance in the onshore market after a nine-month hiatus, marking a first baby step and indicating a recovery of the public bond market access. According to incomplete statistics, Fosun’s return of capital from its asset reduction in 2022 has reached tens of billions of yuan, further consolidating its capital.
On the same day, Morgan Stanley also issued a report commenting that Fosun’s syndicated loan can further improve its liquidity, significantly helping lift market confidence in Fosun’s stability. The firm believes that after several months of active deleveraging efforts, Fosun’s liquidity risk has been greatly reduced. Looking ahead, the reopening of China will help boost fundamentals, especially in businesses such as tourism, retail, and investment.
Previously, Nomura Orient International Securities, China Industrial Securities, and China International Capital Corporation (CICC) have published research reports, expressing their optimism about Fosun’s strategy of streamlining the organization and focusing on its core businesses. Nomura Orient International Securities pointed out that Fosun has firmly promoted and focused on its core businesses in the family-oriented sector at the operational level. With the continuous optimization of China’s epidemic prevention and control measures, the firm expects Fosun to achieve better performance. CICC believes that in the medium and long term, the valuation method of Fosun International is expected to gradually shift from using the NAV of the group to using the PE of the large consumer company. As a result, Fosun is expected to usher in a rise in the central level of long-term valuation.
Based on Fosun’s solid financial performance and strong potential for rebound, Morgan Stanley and Daiwa Capital Markets reiterated their “Overweight”/”Buy” rating on Fosun International. Nomura Orient International Securities, China Industrial Securities, and CICC have assigned Fosun International an “Overweight”/”Outperform” rating.
