Grasping value investing opportunities in the world's changing economic dynamics
A major step forward towards becoming a premium investment group with a focus on China's growth momentum
HONG KONG, Aug. 28, 2013 /PRNewswire/ -- Fosun International Limited (together with its subsidiaries, "Fosun" or the "Group", HKEx stock code: 00656) announced today its interim results ended 30 June 2013. Profit attributable to owners of the parent of the Group amounted to RMB1.69 billion, up 9.1% over the same period last year.
Economies of China and around the world are still in the middle of major changes featuring deep restructurings in 2013, bringing about some of the best opportunities for value investing that Fosun is ready to tap. During the first half of 2013, accumulated investments aggregated RMB5.43 billion, substantially higher than that of the same period last year. During the period under review, Fosun sped up significantly its globalization strategies and newly added 3 international projects. It made substantial accomplishments from strategic implementation of embracing the Internet strategy, taking advantage of the earth-breaking changes brought about by the Internet. Since last year's completion of a comprehensive blue-print with a full range of insurance licenses, the insurance segment made a profit within the first half of the year. Proactively responding to the "new model of urbanization" strategy promulgated by the new leadership at the Central Government, Fosun pioneered innovative modes of value investing in the property segment through facilitating provision of core functions supporting urbanization development, and have launched several projects.
Grasping value investing opportunities, speeding up globalization strategies
From a global perspective, the scale of China's consumption market continues to grow. For selected industries, their China's market shares in the world economy are close to or even outstripped the 22% proportion of China's population in the world. More industries are seeing scales of their markets in China rapidly expanding. Meanwhile, companies engaging in many of these industries, which are industry-leading companies, are based in the US, Europe and Japan. The size of their markets in China, as a percentage of world's total are still very small. These present room for Fosun's development by adopting and further implementing its investment model of "combining China's growth momentum with global resources". In addition, the slowing emerging economies, while in sharp contrast to the recovery growth in the US, presented opportunities for Chinese enterprises in rebalancing their global asset allocations.
Riding on successes of implementing the investment model of "combining China's growth momentum with global resources" in the past two years, Fosun sped up its globalization strategies significantly and completed investments in 3 international projects during the first half of the year, including the US high-end female apparel brand St. John, a global medical technology company that designs, develops, manufactures and markets medical and cosmetic devices, Alma Lasers originated in Israel, the developer of personalized and novel diagnostic tests Saladax in the US. Fosun has successfully propagated its investment model from the Group level to the subsidiary levels and achieved widening of the geographical coverage for its investments, from Europe all the way to North America and the Middle East.
Solid accomplishments for embracing the Internet strategies
The Internet has brought about deep changes to traditional industries, especially the steep challenges for the retail industry and the business model of the financial sector. The next generation is faced with earth-breaking changes to their lifestyles. Many industries are embracing thorough changes to their business models. Fosun has been implementing proactively an embracing the Internet strategy since the second half of 2012, invested in high-growth Internet companies including mobile Internet access, Internet finance and database management. It also invested in industries emerging from development of the Internet, including segregated warehousing, leasing and logistics, etc. It also invested in traditional companies that had undergone upgrades in Internet technologies.
During the first half of the year, Fosun's Internet strategy achieved solid accomplishments, including its successful participation in the China Smart Logistics Network (CSN) -- "Cainiao" Company, its investment in Perfect World (that commanded an IRR of over 79%), the completion of privatization of Focus Media (IRR at 41.6%), etc.
Serving the new model of urbanization, pioneering innovative modes of value investing in the property segment
Propelling development of the new model of urbanization constitutes a focus of the Central Government. It is also a major driver of China's sustainable economic development. Fosun effectively puts together its property development capability and relevant industrial capability or resources to provide core urban functions that serve the new model of urbanization. Several new projects were launched in the first half of the year. For example, in establishing healthcare functions serving the new urban districts, Fosun joins forces with Fortress, a senior living community operator in the US, to invest in Starcastle. The first flagship community opened in May in Shanghai, providing a one-stop offering of high-end senior living services, and was overwhelmingly received. In establishing urban cultural experiences, Fosun proactively develops tourism and experience consumer projects in China like Club Med, which has launched its second resort in Guilin, China. Besides, Fosun has continued to increase its interest in Yuyuan, and support Yuyuan's development in commercial/tourism/culture properties. In establishing urban financial CBD function, the Bund Financial Center ("BFC") project, which is located on the Bund in Shanghai and embodies financial innovations, direct financing, Internet finance, private-sector financing, has already started construction of above-the-ground superstructure, while marketing for sale or rent makes a good progress. The number of cities covered by the private-sector corporate headquarters project under the Star Capital series named "Orstar City" has increased to six and most of them had become best sellers in their respective local markets. In establishing urban trade and logistics functions, Fosun has successfully taken an equity participation in the China Smart Logistic Network.
The insurance segment made a profit within the first half of the year
Fosun has intensified its efforts in developing the insurance segment, seeking to establish this as a best source of long-term, high quality capital supporting the Group's investment capability. At present, Fosun's insurance segment comprises three companies, including Yong'an P&C Insurance, Pramerica Fosun Life Insurance and Peak Reinsurance. They represent three major growth drivers of Fosun's insurance business platform namely property and casualty insurance, life insurance and re-insurance. For the first half of 2013, funds available for investing from the insurance business amounted to RMB13 billion. As the insurance segment continues to grow in scale, it made a profit within the first half of the year, realized a profit of RMB95.5 million in the first half of 2013, which is within the original projection, illustrating a success in exploiting Fosun's investment capability, realizing an annualized investment return of 6.8%.
Tapping PIPE investment opportunities and implementing profitable divestures
Fosun has been looking closely to opportunities arising from having high-quality companies undervalued in public capital markets, grasping many PIPE investments. Following an investment in Focus Media from the open market in 2009 that yielded an IRR of 41.6%, Fosun attempted in many open capital market projects using its PE investment model, such as its investment in Minsheng Bank, etc. In the last 6 years and as at 16 August 2013, Fosun has invested in 35 PIPE projects that yielded IRR of 39%, fully demonstrated Fosun's value investing philosophy and PIPE investments have emerged as a new highlight of a new investment model by Fosun. The investments in PIPE including Focus Media, Perfect World, etc., also illustrated Fosun's embracing the Internet strategy and its edge in capitalizing on investment opportunities in the TMT sector.
In the area of divestures, Fosun successfully divested from 10 projects during the first half of the year and cashed in RMB5.02 billion. The privatization and delisting of Focus Media was completed successfully at the end of May 2013. The Group cashed in US$210.9 million in cash while exchanged 14,545,455 American Depositary Shares of Focus Media, valued at US$400.0 million, for continuing to hold 17.4% interest in the new holding company after privatization and secured a seat in the board of directors so as to share business growth of Focus Media in the future. As at 16 August 2013, Fosun has invested RMB4.2 billion in aggregate in Minsheng Bank, received RMB240 million in dividend income, recovered RMB876 million from partial disposal and realized an IRR of 31.9%. As an investment group, Fosun has been adhering to its "invest and divest" investment strategy and established an impressive track record.
Prospects
Looking ahead, Fosun will continue to adhere its embracing the Internet strategy, speed up its globalization development, focus on large-scale projects, participate in PIPE value investing opportunities, and proactively pioneer modes of value investing in the property segment through facilitating provision of core functions supporting urbanization development. Meanwhile, Fosun will continue to implement a systematic management of its investment risks, establish an open platform to enhance team productivity, thereby enabling Fosun to better and timely grasp the value investing opportunities. These will help Fosun to mark a major step forward towards becoming a premium investment group with a focus on China's growth momentum.
