• Listing of portfolio companies
• Adj. NAV may fall but stock still at a disc.
• Stock tracks broader HK/CH market

Unlocking Value From Investments

Fosun International recently listed Fosun Tourism in Dec last year, raising HK$3.34b (US$427m) following a similar-sized offering in Sep when Fosun Pharmaceutical spun off its Israeli lasermaking unit Sisram Medical. Fosun Tourism’s assets include Club Med as well as Atlantis, a luxury resort in Sanya, Hainan which was officially launched in Apr last year.

Recall that Fosun acquired a majority stake in Club Med in 2015, following a two-year bidding war for the French company. Fosun Tourism’s IPO price was HK$15.60, and as of 8 Jan 2019, the stock closed at HK$13.84.

Balance Sheet Remains Healthy

For Fosun International, its net gearing remained comfortable at 53.6% as at 1H18, compared to 49.7% as at end 2017 and 60.3% as at end 2016. Recall that the group has been deleveraging from 86.0% in 2013, and the group looks to keep net gearing below 60%.

Adjusted NAV/share Likely to Fall But Stock Still at a Discount

The group’s adjusted net asset value (NAV) of end Jun 2018 was HK$30.78/share, down 7.5% from end 2017, mainly due to lower market prices for the group’s investments. As a reference, in 1H18, the Hang Seng Index (HSI) was down ~5% while the Shanghai Composite Index (SHCOMP) was down ~15%.

From end Jun to end Dec 2018, the HSI is down ~8.5% while SHCOMP is down about 11.5%. Assuming that Fosun International’s adjusted NAV was cut by another 15% from end Jun 2018, this would translate to HK$26.16/share, and the stock is still trading at a 60% discount to that figure.

Investment Risks/concerns

Further weakening in sentiment for the Hong Kong and Chinese stock markets will affect valuations and crimp the ability of the group to unlock value of its investments. Execution risks for the group’s portfolio companies would also affect earnings and valuations.

We have tweaked our assumptions with lower valuations for listed peers on the healthcare and consumer segments, as well as the group’s listed entities, such that our fair value estimate slips to HK$16.22.

Source: OCBC Research - 9 Jan 2019