Fucheng shares (600965.SH) is an integrated multi-industry company spanning aquaculture and food processing, catering services and mausoleum businesses. The company's acquisition of Sanhe Lingshan Pagoda Cemetery took the first step into the funeral industry, and at the same time set up an industrial merger and acquisition fund to acquire the mausoleum in other places. at present, the company has completed the transfer of equity to Longyi Cemetery in Yixing City and Qianjiang Cemetery in Hangzhou. It is expected that the extension expansion layout will continue in the future. As the only funeral industry-related target in the A-share market, and considering the company's strategic layout and unparalleled advantages in capital and platform, we can expect the company to become a real funeral industry leader through industry integration! Main points of investment:

There is a huge market space for operating cemeteries in China, and the sales volume and unit price of operating cemeteries with backup land will rise significantly: cemetery services account for 60% of the 100 billion-dollar funeral market, and the land and license plates of cemeteries are scarce resources. land for follow-up burial in first-tier cities is on the verge of drying up; increasing aging aggravates the demand for Shou acupoints. The growing gap between supply and demand, rising land costs and rising consumption levels will all push up the price of graveyard.

Its Pagoda Mausoleum sits in a huge market in Beijing, with high-quality profitability laid by its geographical location and scarcity advantages, with expected future growth. The unit price in the first half of the year increased by nearly 30% compared with the same period last year, accounting for more than half of the net profit; the Longyi Cemetery and Qianjiang Mausoleum with strong growth force, both located in more economically developed areas, with higher unit prices and sufficient reserve land resources, can meet the individual service needs of customers.

At present, the concentration of the industry is extremely low, and the giants have a good opportunity to integrate: the mausoleum business has high profits and low risk. Fucheng, as the only A-share funeral industry unit, has the first-mover advantage and capital advantage, and epitaxial mergers and acquisitions seize the opportunity to carry out national distribution sites. It is expected to become the leader of the domestic cemetery industry.

Investment rating and valuation: optimistic about the strategic layout of the company's cemetery business and future performance growth, regardless of the possibility of future IPOs and acquisitions, the company's net profit from 2016 to 2018 is expected to be 2.24,3.60,472 million yuan respectively, corresponding to EPS of 0.27,0.44,0.58 yuan per share, given a "highly recommended" rating and suggested to focus on.

Risk hints: the risk that the M & A process does not live up to expectations; the risk of policy change in the funeral industry; and the risk of food safety black swan incident in the beef industry.