Key investment points The funeral industry has a scale of nearly 100 billion dollars in 17 years, and is expected to maintain a high growth rate of 16%. Among the four major sub-industries, the funeral-graveyard service industry is the largest, with an industry scale of close to 60 billion, +17%; it is difficult to find an operating cemetery license, which requires gradual approval procedures. Few new licenses have been introduced in recent years; the concentration of the industry is low, funeral CR5 is only 3.2%. The cemetery CR5 is only 3.2%, and is similar to the early stages of real estate. Fucheng Co., Ltd. is the absolute leader in the funeral industry in the future. The three 10 billion are worth paying attention to - the first 10 billion: the market capitalization of 12 billion dollars has a net profit of 14 billion dollars, and development will be completed within 30 years. The first phase of the pagoda cemetery plan consists of 125,000 tombs and 40,000 columbarium. There are 3 phases, all 400,000 tombs after completion. In 1H16, the unit price of a tomb was 66,000 yuan (+30%). According to the average price of 70,000 yuan (future annual increase of 20% +) * 400,000 units = 28 billion yuan, the net profit margin is 50%, which will reach 14 billion yuan. The calculation is conservative. The company's expense ratio is currently close to 30%. As the scale of revenue increases, it is reasonable to gradually reduce the cost rate to 15%. The net interest rate is expected to rise to 65%, and the profit is 15.5 billion dollars. The second 10 billion: 10 billion industrial funds have acquired operating graveyard licenses in various regions. The first phase of the 1 billion dollar acquisition project has already been implemented in Yixing's Longshu, and it is not ruled out that it will continue to expand in the near future. Through research on the Yixing project, we learned that the project contributes at least 40 to 60 million in profit every year, the company's acquisition valuation is 5-7 xPE, and the industrial fund is still 800 million dollars. In addition to the listed companies' own capital, we speculate that the profit from subsequent mergers and acquisitions of the first phase of the fund will not be less than 150 million, and the size of the subsequent fund will still be 9 billion. The industry concentration is extremely scattered, and there is huge room for expansion and expansion. Referring to the expansion model of Fushouyuan, the future development of the funeral industry depends on the extension of mergers and acquisitions of scarce licenses for cemeteries in various regions. The advantage of merger and acquisition licenses is that you can continue to participate in local government tenders, not one-time land acquisition revenue. Since the original license holder did not have sufficient documents for land acquisition procedures in the early years, there is currently a need to supplement the land security deposit, and the funds are insufficient. Fucheng is the only platform where A-shares can be securitized. Liquidity is good, and stock exchange returns are more obvious. Third 10 billion: The majority shareholders have 10 billion dollars in cash, and the company is rich in cash. 1H2016 has 500 million dollars in book cash plus 160 million dollars in sales of Yanjiao Dairy Farm and 10 billion dollars in cash from Fucheng Group, the majority shareholder, with sufficient capital as the underdeveloped end of industrial funds. The future will focus on the main funeral business, and other businesses will be spun off one after another. Since 2015, the number of restaurants has been reduced, 15 stores have been shut down in 1H16, and dairy farming in Yanjiao was sold in September 2016. The divestment of the main non-funeral business is not ruled out in the future. Profit forecasts and investment suggestions: A shares are the target of the scarce funeral industry, extended expansion, continued mergers and acquisitions+endogenous growth, sharp rise in volume and price, and the only platform for capitalization of graveyard licenses (convertible shares). Refer to US stock SCI and Hong Kong stock Fushouyuan both 30xPE, giving 50xPE. It is estimated that the diluted EPS in 16-18 will be 0.24, 0.41, and 0.74 yuan, respectively. Forecast by business: The beef+food business is expected to contribute 90 million yuan and 100 million dollars in profit in 16-17, giving 20xPE in '17, with a market value of 2 billion dollars. The funeral industry is expected to have a net profit of 100 million yuan in 2016. At the same time, assuming a profit of 200 million dollars from extended mergers and acquisitions, a profit of 300 million yuan for exam preparation in 2016, and a profit of 500 million dollars for M&A funds in '17, continued to expand to more than 3 billion dollars in '17, and a profit of 500 million dollars in preparation for the exam in '17. Give 50xPE, corresponding to a market value of 25 billion dollars, a total market value of 27 billion dollars, and buy. Risk warning: M&A process falls short of expectations, food safety risk.