Event

According to the company's semi-annual report in 2023, H1 realized revenue of 1.563 billion yuan in 2023, an increase of 68.89% over the same period last year, and its net profit was 465 million yuan, an increase of 77.99% over the same period last year. The basic earnings per share was 0.205 yuan, with a proposed final dividend of HK9.06 cents per share.

Main points of investment

The deferred demand was released quickly in the first half of the year, and the revenue and net profit recovered significantly: at the end of revenue, the company's revenue increased by 68.89% in the first half of the year, mainly due to the multi-point spread of the epidemic in the same period last year, which significantly restricted the company's business development, resulting in a low base last year. After the release of the epidemic this year, the cumulative and deferred demand was quickly released, and the company's performance was compensated.

At the net profit end, the company's return net profit increased by 77.99% in the first half of the year, mainly due to the release of cumulative and deferred demand in the first half, and the rebound in sales volume of weighted cemeteries was higher than that of other developing cemeteries, and the contribution of sales revenue to the company increased.

Cemetery weight cities recovered better, and the volume and price of funeral services rose: in the first half of 2023, cemetery services, funeral services and other services accounted for about 84%, 15% and 1% respectively. In terms of cemetery services, the revenue of cemetery services reached 1.287 billion yuan / + 76.9% in the first half of 2023, mainly due to the rapid release of cumulative and deferred demand, the obvious growth in the weighted city of Shanghai, and the increase in the contribution of newly acquired cemeteries. In the first half of 2023, the company's operating tomb sales revenue increased by 84.3% over the same period. In terms of split price, the sales volume increased by 60.5%, and the sales price increased by 14.9%, mainly due to a substantial increase in the proportion of sales in the weighted city of Shanghai. In terms of funeral services, the revenue of the company's funeral services reached 224 million yuan in the first half of 2023, an increase of 36.2% over the same period last year. In terms of split price, the total number of company funeral services increased further by 20.2% to 41693, and the average passenger unit price increased by 13.3% in the first half of the year. The increase in the number of funeral services under the comparable caliber is mainly due to (1) the normal operation of funeral facilities and the development of value-added services after the release of the epidemic; (2) the continuous growth in the number of newly established funeral facilities contributing customers. From a regional point of view, the Shanghai area contributed a major source of income, with revenue of 734 million yuan, an increase of 123% over the same period last year, accounting for 49%, mainly due to a low base in the same period last year and the recovery of the graveyard market in the first half of this year. Revenue in other regions has increased to varying degrees, mainly due to the concentration and rapid release of deferred and cumulative demand.

Structural optimization led to the increase of operating profit margin: in terms of profitability, the company's operating expenditure increased by 36.6% in the first half of 2023 compared with the same period last year, mainly due to the increase in operating expenses caused by the substantial increase in the number of operating activities and sales services. Among them, staff costs increased by 30.6%, product engineering costs increased by 7.7%, and marketing and sales channel costs increased by 52.8%. The company's operating profit margin increased by 10.3pct to 55.4% compared with the same period last year, and the net profit margin increased by 2.3pct to 38.4% compared with the same period last year, mainly due to structural optimization and the increase in the proportion of mature cemetery sales, driving the overall operating profit margin up.

Brand advantage occupies the first opportunity in the industry, scientific and technological enabling products and service innovation: from the perspective of the industry, the funeral industry benefits from per capita disposable income, an aging population, the promotion of urbanization and the promotion of Chinese traditional culture. will continue to promote the growth of diversified and differentiated demand in the funeral industry. In the first half of the year, the company completed one equity acquisition project (signed a contract to acquire a 100% stake in Yan'an Hongfu Cemetery Co., Ltd., as a Shaanxi-Gansu Revolutionary Memorial Park in June 23), and one new cooperative project (the first northern government-enterprise cooperative funeral project landed in Luoyang in June 23). As of the first half of 2023, the company operates a total of 34 cemeteries and 32 funeral service facilities, with a total area of about 2.6 million square meters of certified land that can be used for tomb sales. The company continues to expand other important provinces and blank areas in the country, strengthen cooperation with the government and government platforms, integrate diversified business resources, and achieve regional coordinated development. In addition, the company actively participates in the construction of Internet + 's funeral service, promoting new funeral models such as remote farewell and online sacrifice, as well as the Lanyuan Universe Huixin Valley project.

Investment suggestion: Fushou Garden is the leader of domestic operating cemeteries. With the help of cross-regional expansion in the context of domestic aging and urbanization, the company is expected to achieve sustained growth. Based on the company's reported performance and the performance of overseas mature enterprises, we slightly adjust the company's profit forecast that the company's operating income from 2023 to 2025 is 29.46,35.42 and 4.188 billion yuan, and the net profit is 8.70,10.40 and 1.21 billion yuan respectively. Earnings per share are 0.37,0.45,0.52 yuan respectively, maintaining the "buy-A" recommendation.

Risk hints: the number of new M & A projects is less than expected risk; the expansion speed and landing performance of new M & A projects is lower than expected risk; industry regulatory policy tightening risk; epidemic repeated risk; goodwill impairment risk and so on.