Yep I am serious. Even funeral businesses are listed, yup you heard that right. Today I would be exploring a unique business that Fu Shou Yuan International Group Limited (HKG:1448) is involved in – the funeral service business.
Why Is There A Stigma Against Such Business?
If you were to ask what type of business I like if price was not a consideration, I would state the following points:
1) Strong Demand (Death is a certainty and a large population = more operations)
2) Low Capital Expenditures (Not really rocket science)
3) Strong Cash Flow (See point 1 & 2)
I would think that the funeral business would fit all of these to a T.So why the stigma?
One reason would undoubtedly be a cultural issue in this area of the world, or rather for most places – death isn’t a very welcomed event.
Many say that the stock market is an unforgiving place. But to me, the stock market is simply a ‘fair’ place. Generally, the stock market doesn’t discriminate – a rose is a rose is a rose – a dollar is worth a dollar. As long as a business is profitable, Wall Street approves! And this was proven with demand of over 681 times for the retail portion of Fu Shou Yuan’s IPO shares back in Dec 2013 with as much as a 66% gain on their debut day.
So What Does Fu Shou Yuan Actually Do?
From their prospectus, Fu Shou Yuan with revenue of RMB480 million was reportedly one of the largest death care service providers in terms of revenue and geographical coverage in the People’s Republic of China (PRC) in 2012.
They were one of the first private company entrants into the PRC death care services industry since taking charge of their first cemetery in Shanghai in 1994. Today their operations include:
1) Cemetery Parks and Services
2) Funeral Services
3) Cremation Machines
They are basically a one-stop death care provider. Most of the time we heard of one stop healthcare provider, a one-stop death provider is rather refreshing.
What Does This One-Stop Service Cover?
Let’s take for example Fu Shou Yuan’s funeral services which covers the client from:
1) Transporting of the deceased to their funeral facility
2) Selecting of funeral packages (There’s really a huge selection to choose from!)
3) Preparation for ceremony
4) Conduct of ceremony
5) Conduct of farewell ceremony
6) Transport of deceased to crematorium
Value In Action
With a net profit margin of 25% in FY2012, you could see why they were oversubscribed during their IPO! For such a business the key considerations that a Shareholder has to take note of would be the price and the management. If the notion of death and ‘bad karma’ doesn’t matter, and of course at the appropriate price, Fu Shou Yuan may be worth a look for you!
Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!
We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded.The information provided is for general information purposes only and is not intended to be any investment or financial advice.
All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Mun Hong does not own any shares in the companies mentioned above.