Asset Divestments And Global Expansion In Healthcare And Tourism Will Boost Future Prospects

Key Takeaways

• Divesting non-core assets and reducing leverage could improve net margins by lowering interest expenses.
  
• Global expansion in healthcare and tourism, with an asset-light approach, aims to drive revenue and enhance operational efficiency.
  
• Heavy reliance on non-core asset disposals and declines in key sectors may threaten Fosun International's revenue stability and profitability.

Catalysts

Operates in the health, happiness, wealth, and intelligent manufacturing sectors in Mainland China, Portugal, and internationally.

• Fosun International's strategic focus on divesting non-core and non-strategic assets while optimizing their balance sheet is expected to reduce leverage significantly, aiming for debt reduction to RMB 60 billion, potentially improving net margins by reducing interest expenses.
  
• The company's ongoing global expansion, particularly in healthcare and tourism, is anticipated to drive revenue growth, with an emphasis on markets like the U.S., Europe, and parts of Asia, supported by products like serplulimab and tourism ventures like Club Med.
  
• Fosun's emphasis on innovation and R&D, particularly in the pharmaceuticals segment, plans to bolster its revenue stream through the development of first-in-class drugs and biosimilars, aiming for strong entry into lucrative markets like the U.S., which could enhance earnings.
  
• The increasing focus on asset-light strategies and partnerships, particularly in tourism and biopharmaceuticals, is projected to streamline operations and improve operational efficiency, potentially leading to higher net margins.
  
• The expected Fed interest rate cuts could lower the cost of borrowing, improving financial flexibility and profit margins while enhancing the valuation of international operations and strategic divestments.

Fosun International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fosun International's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.3% today to 3.1% in 3 years time.
• Analysts expect earnings to reach CN¥7.6 billion (and earnings per share of CN¥0.92) by about April 2028, up from CN¥-4.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, up from -7.1x today. This future PE is greater than the current PE for the HK Industrials industry at 6.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.71%, as per the Simply Wall St company report.

Fosun International Future Earnings Per Share Growth

Risks

• Fosun International's profit to owners decreased by 47% year-on-year due to ongoing consumption recovery and asset divestment, which could pressure net margins and overall earnings.
  
• Continuation of asset divestments and heavy reliance on non-core asset disposal pose risks to revenue consistency and future profitability.
  
• The health segment's revenue declined by 2.4% year-on-year due to the absence of COVID-related product sales, potentially impacting future top-line growth.
  
• The reduction in revenue for the liquor business by 7.3% year-on-year, alongside challenges in the macro consumption landscape, could hinder revenue streams and profit margins.
  
• Intelligent manufacturing sector revenue saw a 2.4% year-on-year decline, driven by a reduction in iron ore prices and unaccounted profits, affecting revenue stability and profitability.

Valuation

• The analysts have a consensus price target of HK$4.945 for Fosun International based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥248.5 billion, earnings will come to CN¥7.6 billion, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 7.7%.
• Given the current share price of HK$4.01, the analyst price target of HK$4.95 is 18.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.