Main points of investment

1. The funeral industry has a broad market, benefiting from an aging population.

The funeral industry has a market scale of nearly 100 billion yuan, of which more than half is the operating cemetery with the highest degree of private participation. Restricted by the land property and the license plate of the Civil Affairs Bureau, the supply of operational cemeteries is limited, which has been maintained at about 1600 in recent years; in the long run, the demand has increased steadily due to the aging population structure. Our country has a long tradition of long funeral and thick burial. The culture of filial piety and the idea of "buried in peace" make the buyer seldom negotiate the price and the industry is profitable.

two。 The company's funeral business has a net interest rate of 50% and is highly profitable.

The company acquired the Pagoda Mausoleum in 2015, around Beijing, with outstanding location advantages; gross profit margin 80%, net profit 50%, tomb unit price rising year by year, outstanding profitability.

3. The pattern of the funeral industry is uncertain, A shares only bring room for imagination.

Strict control of the industry, it is difficult to set up remote institutions; but due to historical reasons, there are a number of licensed operating cemeteries for sale, looking for buyers, mergers and acquisitions have become the main way for funeral companies to grow big. Fucheng share is the only funeral company in A share. Market recognition, valuation premium and liquidity premium have become the bargaining advantages of the company's extension time. 2016H2 M & A fund has completed the merger and acquisition of Yixing Longyi and Qianjiang Mausoleum, opening up the Jiangsu, Zhejiang and Shanghai markets. It is expected to continue to expand in the future.

4. Investment advice:

The company's three main businesses, animal husbandry and catering, support the market capitalization of 3.4 billion yuan; the funeral industry adopts DCF discount, considering the expectation of remaining equity injection, the company's cash and industrial funds continue to be extended, which can support 16.6 billion of the market capitalization and 20 billion of the market capitalization space is expected. Now the market capitalization is 11.5 billion, the space is bigger, buy.

5. Risk hints: the risk of animal husbandry epidemic disease; the decline of the catering industry; and the operation of the funeral industry is not up to expectations.