Events:

Fushou Garden issued the 2023 interim results announcement: 2023H1, Fushou Garden achieved operating income of 1.525 billion yuan / year-on-year + 68.20%, return to the mother net profit of 465 million yuan / year-on-year + 77.99%. Among them, the revenue from cemetery / funeral / other services is RMB 12.87 million, which is RMB 2.24 billion, which is + 76.92% plus 36.21% and 8.65% respectively.

Main points of investment:

With the release of cumulative demand, cemetery income rebounded rapidly. The operating tomb income of 2023H1 is 118 million yuan / year-on-year + 84.3%, the number of sales increases by 3688 or 60.5%, the growth rate is + 85.8pct, and the average selling price growth rate is 114.9% / year-on-year growth rate + 13.5pct. In the same period last year, the severe epidemic situation in Shanghai continued to affect offline tomb selection, and the demand for funeral and interment after the low base superimposed epidemic continued to replenish. The proportion of 2023H1 Shanghai Cemetery sales rebounded, leading to an increase in average sales unit price. Comparable cemetery income was 118 million yuan / year-on-year + 84.3%, sales increased by 3686 or 60.4%, growth rate was + 87.2pct, and average selling price increased by 113.5% / year-on-year + 19.8pct. The revenue of newly purchased / newly built graveyard is 187,000 yuan / 96.3% compared with the same period last year.

Revenue from mature cemeteries rebounded to improve profit margins. Last year, Shanghai cemeteries were affected by the epidemic to form a low base. With the release of market demand after the epidemic, the proportion of sales in Shanghai cemeteries with higher profit margins rebounded, driving the overall profit margin to rise. The operating profit of 2023H1 cemetery service is 802 million yuan / year-on-year + 104.49%; the operating profit margin is 62.3% / year-on-year + 8.40pct. The number of contracts signed in life reached another record high, with a total of 9272 contracts signed, an increase of 18.4 per cent over the same period last year.

Join hands with Panyang funeral state-owned enterprises to achieve the first government-enterprise cooperation funeral project in the northern region. 2023H1, the company completed the acquisition of 100% equity in Hongfu, Yan'an, and obtained 428 mu of funeral construction land, strategically stationed in Shaanxi. In terms of funeral services, the company and Panyang Fuyuan Industry (Panyang large state-owned funeral group) jointly set up a joint venture to carry out funeral service related business, which is the company's first government-enterprise cooperation funeral project in the north. As of June 30, the company has an area of about 2.6 million square meters of land available for tomb sales (about 2.62 million square meters in the same period last year).

After the epidemic, funeral facilities resumed normal operation, and high value-added funeral services recovered well. Since 2023, funeral facilities have gradually returned to normal operation, and value-added funeral services suppressed by the epidemic have been restored rapidly. in addition, new funeral facilities have entered a rapid climbing period, brands and products have gradually been recognized by the market, and the number of customers has continued to increase. The income of 2023H1 funeral service is 224 million yuan / year-on-year + 36.2%, the number of customers is + 20.2%, the average service unit price is + 13.3%, the income of comparable facilities is 224 million yuan / year-on-year increase of + 36.2%, and the income of new funeral facilities is 32000 yuan. The operating profit of 2023H1 funeral service is 47 million yuan / year-on-year + 113.2%; the operating profit margin is 20.9% / year-on-year + 8pct.

Profit forecast and investment rating: during the epidemic period, the backlog of demand is expected to be released quickly in 2023. We expect operating income to reach 28.67 million yuan in 2023-2025, an increase of 32.04%, 14.19%, 12.78%, and 8.72%, 9.94, 1.14 billion yuan, an increase of 32.10%, 13.96%, 12.13%, respectively. Corresponding to the valuation 15.69/13.77/12.29xPE, the industry pattern is excellent, the company is the funeral leader, holds a large number of cemetery assets, builds a solid first-mover advantage barrier, and maintains the "buy" rating.

Risk hints: the progress of cemetery extension M & An is not as expected; the change of cemetery supervision policy is uncertain; industry competition intensifies; post-epidemic recovery is less than expected; the downward macroeconomic cycle affects medium-and high-end funeral expenditure.