In Chinese society, which values filial piety and respect for the elderly, people's aspirations for a good life extend not only to when they are alive, but also to matters after death. "Find peace in passing" is not only the preservation of the dignity of the deceased, but also a reflection of cultural inheritance and social progress.

In recent years, with the continuous advancement of new urbanization, the deepening trend of population aging, and the steady increase in the cremation rate, the public's requirements for the quality of funeral services and the diversification and differentiation of funeral service content have been continuously changing. With the promotion and deepening of special rectification actions in the funeral service industry, the level of legalization in the industry has been continuously improved. While regulating the market order, it has also accelerated the modernization of funeral culture and services.

During the interim reporting season of Hong Kong-listed companies, Fu Shou Yuan (01448), which is actively transforming into a "life technology service provider", recently disclosed its mid-term performance for 2024. The Wisdom Finance app believes that with Fu Shou Yuan's latest financial report as a window of observation, we may take this opportunity to explore the latest achievements of this industry-leading enterprise in leading the high-quality development of the funeral service industry. At the same time, by combining the business actions inside and outside the financial report with the industry trends, we may re-evaluate the investment value of Fu Shou Yuan.

Empowering business development with technological innovation.

Looking back at the economic performance in the first half of this year, the external environment has become more complex, severe, and uncertain. At the same time, the adjustment of the domestic structure is still evident, and factors such as the shortage of short-term effective demand continue to hinder the recovery of the service industry economy. The consumption capacity of residents still needs to be further improved.

Against this backdrop, the development pace of the funeral service industry has also been affected by external factors. For example, the consumption behavior of some customers has shown a more cautious trend, with longer decision-making cycles. In addition, there are signs of reduction in local support policies for funeral service companies.

Despite the changes in the industry environment, Fu Shou Yuan achieved resilient performance during the reporting period by actively exerting its subjective initiative. In the first half of the year, Fu Shou Yuan achieved a revenue of 1.1 billion yuan (RMB, same unit) and a net income attributable to the parent of 0.299 billion yuan.

Behind the solid financial data is Fu Shou Yuan's proactive adjustment and optimization of its product structure based on market demand changes, leveraging technological means to meet the growing spiritual consumption needs of consumers with innovative products.

Take the "3JI" concept proposed by Fu Shou Yuan as an example. In recent years, the company has been committed to making symbols beautiful, records thick, and memories long. For example, by building a humanistic park, Fu Shou Yuan has gathered the physical and spiritual information of carbon-based life and transformed the symbol of life into a form of beauty. For example, Fu Shou Yuan uses modern technology to digitally preserve life information on a large scale, including biological genes, life stories, and cultural ideologies. It comprehensively and meticulously records valuable data and insights for future restoration or understanding of human history, and also provides important references for the design and evolution of silicon-based life. And by constructing a "smart cemetery," Fu Shou Yuan not only provides a digital eternal life for carbon-based life, but also provides new possibilities for the inheritance of family culture and the continuation of life value.

In terms of marketing scenarios, Fu Shou Yuan has also made innovative changes. For example, Fu Shou Yuan has transformed its original community store strategy into "Life Bookstores," using online life cultural and educational products to attract customers, and using offline physical bookstores' reading clubs, life education small classrooms, digital archives, museums, image galleries, cultural DIY, and other high-frequency cultural interactive products and services as tools to connect with customers. Finally, it forms a closed loop by promoting and guiding customers to make life planning arrangements.

Combining the various examples mentioned above, it is not difficult to see that Fu Shou Yuan, which is firmly utilizing technological means to empower business development, has ushered in an upgrading of value: compared to traditional funeral comprehensive service providers, today's Fu Shou Yuan is closer to a provider of life technology services, which is a groundbreaking transformation closely related to each individual. In addition to providing basic funeral services, Fu Shou Yuan, with the support of technology, has also gained the ability to provide diversified and multilevel services for the public.

The triple determinism solidifies the ability to withstand cycles.

In this historical stage where the external environment is becoming increasingly complex and severe, and the internal economy is slowing down in quality improvement, "determinism" naturally becomes the main pursuit in this market environment with increasing uncertainty.

Taking into account the industry environment, policy direction, and the company's fundamentals, Zhitong Finance and Economics APP believes that Fu Shou Yuan can be considered as a relatively scarce high-certainty investment target in the Hong Kong stock market.

Firstly, the analysis of the funeral industry in Fu Shou Yuan shows that due to the continuous deepening of the aging population in China, the future demand for funeral services will show a deterministic expansion trend. Public data shows that as of the end of last year, the population of people aged 60 and above in China was 2.9697 billion, accounting for 21.1% of the total population, an increase of 1.3 percentage points year-on-year. In 2023, the annual number of deaths in China was 11.1 million, an increase of 0.69 million from the previous year.

According to data disclosed by the core journal of population studies, from 2024 to the end of the 21st century, China will experience a total of 1.23 billion deaths, with an annual average of 16 million deaths.

The rapidly growing market demand urgently needs to be met, which requires the top companies in the industry to provide quality supply that is well-matched and superior in service and products to the market.

Secondly, from the evolution of industry policies, the regulatory attitude aims to strengthen the institutional construction of the funeral industry, promote the modernization of the funeral governance system and governance capabilities, and thus promote the long-term healthy development of the funeral industry in China. For example, in February of this year, the Ministry of Civil Affairs held the annual work mobilization and deployment meeting, once again emphasizing the acceleration of filling the gaps in funeral service facilities, including increasing investment in the construction of basic facilities such as funeral parlors, cemeteries, improving the coverage and service capabilities of funeral facilities. At the same time, various regions across the country are also deeply promoting the special rectification action of the funeral industry. It is reported that the rectification mainly targets various illegal and non-compliant operations, unfair competition, corruption, power rent-seeking, inaction, and disorder that are bred by administrative monopoly.

Considering the already high barriers to entry in the funeral industry, and with the continuous improvement of the institutional and systemic aspects of the funeral sector, the trend of approval for domestic commercial cemeteries is expected to become more stringent. This also means that high-quality funeral resources will become more scarce. Against this background, Fu Shou Yuan, which is at the forefront of compliance construction in the industry, is expected to further amplify its competitive advantage.

Lastly, looking back at the fundamentals of Fu Shou Yuan itself, despite the growth pace of the company being interrupted by many external negative factors in the first half of this year, overall, even under pressure, the company's performance still shows strong resilience. Not only that, during the reporting period, Fu Shou Yuan also signed 11,923 pre-need contracts, an increase of 28.6% year-on-year. The steady growth of customer reserves undoubtedly also contributes to smoothing out the impact of cyclical fluctuations on Fu Shou Yuan, enhancing its stability and certainty. At the same time, Fu Shou Yuan is steadily advancing its established plans to expand business into untapped markets.

It's also worth noting that despite the pressure on its performance, Fu Shou Yuan continues to insist on generously rewarding its shareholders. According to the company's interim report, Fu Shou Yuan intends to distribute an interim dividend of HK6.38 cents per share.

Looking at the longer time horizon, since its listing, Fu Shou Yuan has been increasing its dividend payout every year. In the past three years, the company's annual dividend amounts have shown a sign of accelerating increase. In 2021-2023, the dividend per share of Fu Shou Yuan was 11.28 cents, 13.22 cents, and 37.31 cents, calculated based on the average annual stock price of the company, the return on investment has been rapidly increasing year by year, reaching approximately 6.4% in 2023, which is still quite attractive in the market.

At the current time point, more than half of the year 2024 has passed. Looking back at the market performance since the beginning of this year, the capital markets have seen a significant increase in volatility due to various internal and external uncertainties. In a market full of uncertainties, seeking certainty becomes particularly important. Taking the comprehensive analysis into account, looking outward, Fu Shou Yuan is in a track of expanding certainty, while industry regulatory policies also strongly support the healthy development of the industry; looking inward, the company has prominent scale and brand advantages, has achieved a deep layout across the entire industry chain, and with the support of technology, the company's internal dynamics are sufficient. With multiple certainties, such investment symbols are obviously worth long-term tracking and continued focus by investors.