Source: Global Banking & Finance Review (issue 66)

Date: 7, October 2024

Chinese multinational conglomerate Fosun International Limited is a global innovation-driven consumer group whose mission is “creating happier lives for families worldwide.” Since its inception in 1992, Fosun has accumulated profound technology and innovation capabilities and a significant industrial presence in more than 35 countries and regions worldwide.

Fosun International’s overseas development has been steadily rising in recent years, with its number of overseas employees reaching 48,500 in the first half of 2024, its overseas business accounting for 47% (RMB45.87 billion) of its total revenue, and the 10-year CAGR of overseas revenue reaching 55%. When Chen Qiyu, Fosun International’s Executive Director and Co-CEO, spoke to Wanda Rich, editor of Global Banking & Finance Review, he provided some insight into how Fosun has achieved this balance between domestic and overseas operations by sharing some successful examples of the company’s globalisation efforts.

“One example is Fosun Pharma, which began its internationalisation journey ten years ago,” he began. “It has now become a leading global integrator of pharmaceutical and healthcare innovation. In the first half of 2024, Fosun Pharma achieved overseas revenue of RMB5.51 billion, representing a year-on-year increase of 15.13%, and accounting for 27.03% of total revenue.”

Regarding global R&D and business development, HANQUYOU, a biologic medical product used in the treatment of breast cancer and self-developed and manufactured by Shanghai Henlius Biotech, Inc., a subsidiary of Fosun Pharma, received marketing approval from the US Food and Drug Administration in 2024. “HANQUYOU has now been approved for marketing in 48 countries and regions, and benefits more than 200,000 patients in China,” Qiyu reported. “In addition, HANLIKANG (approved by the National Medical Products Administration for the treatment of non-Hodgkin’s lymphoma, chronic lymphocytic leukaemia, and rheumatoid arthritis) received its first overseas marketing approval in Peru.”

Developments also transpired in terms of Fosun’s cultural outreach, with the Yuyuan Garden Lantern Festival making its overseas debut in Paris, France, and attracting nearly 200,000 local visitors. Regarding global operations, Qiyu revealed a number of key areas that have enjoyed recent growth. “Fosun Insurance Portugal achieved business growth both domestically and internationally in the first half of 2024, with the net profit of international business accounting for over 40%,” he said. “Club Med, a subsidiary of FTG (Fosun Tourism Group), achieved a record-high business volume of RMB8.89 billion in the first half of the year. Its business in the EMEA region and the Americas continued to grow, while its business in the Asia-Pacific region recovered significantly. Furthermore, Easun Technology achieved new overseas orders of RMB3.99 billion in the first half of the year, with orders from the US market more than doubling year-on-year.”

A Long Recognised Champion of Globalisation equipped with Global Operation and Investment Capabilities

Fosun, a company that has been long recognised as a champion of globalisation, has developed into one of the few in China to be equipped with global operation and investment capabilities. Recent reports from Fosun’s subsidiaries have highlighted that development is currently being pursued in the key focus areas of the Middle East and Southeast Asia. “The globalisation gene has been deeply rooted in all of Fosun’s business segments,” Qiyu confirmed. “We continue to strengthen our marketing capabilities and advance local manufacturing capabilities in Africa and the Middle East. In June 2023, Fosun Pharma established a partnership with the International Finance Corporation to build the integrated Cote d’Ivoire park that encompasses drug R&D, manufacturing, and logistics and distribution, promoting the local production and supply of antimalarial and antibiotic products in Africa.

“In the Middle East, Hainan Mining reached a memorandum of understanding with Ajlan & Bros Mining Company in July 2024 to explore the feasibility of jointly building a lithium salt plant in Saudi Arabia. In May 2024, Club Med, Fosun’s high-end lifestyle brand that offers all-inclusive luxury holidays, announced its entry into the Middle East. Its first resort in the region is scheduled to open in Oman in 2028.”

He added that, looking ahead, Fosun plans to continue strengthening its multidimensional cooperation with partners in the Middle East in industry, projects, and funding. “We believe that, in leveraging Fosun’s extensive experience in globalisation and operational capabilities, along with our deep understanding of the Chinese market, we can connect our Middle East partners with leading global enterprises and products, thereby achieving win-win cooperation across various fields.”

Fosun has adhered to a ‘focused’ strategy in recent years, aiming to develop industry-leading companies in advantageous industries to achieve stable profit growth, while also prioritising its asset-light operation capabilities. Qiyu outlined the business areas the company plans to target for further development in this vein. “We will continue to focus on the four core business segments: Health, Happiness, Wealth, and Intelligent Manufacturing,” he emphasised. “Core companies in these businesses include Fosun Pharma, Yuyuan, Fosun Insurance Portugal and FTG. We hope to quickly establish competitive advantages and build profitability in these segments and companies while increasing our investment in sustainable development. On the one hand, we will continue to pursue globalisation. On the other hand, we will make use of resources for necessary mergers and acquisitions and integrations. We aim to divest from heavy assets and control expansionary investments related to production and operations.

“Fosun’s asset-light operation model has proven to be an effective one. Currently, 85% of Club Med resorts have adopted a leasing and management model, with the proportion of self-owned resorts declining to 15%.”

A continuing element of Fosun’s future strategy will involve reinforcing in-depth cooperation to achieve win-win results by implementing joint ventures that complement all parties’ strengths. “In June 2024, FTG joined hands with the Taicang Municipal Government to build Phase II of the Taicang Alps Resort,” Qiyu revealed. “The project, with a total investment of over RMB5.0 billion, is funded by the Taicang Municipal Government and operated and managed by FTG.

“In addition, in March 2024, Fosun Pharma, Shenzhen Guidance Fund and seven other investors jointly established a RMB5.0 billion biomedical industry fund, exclusively managed by Fosun Pharma’s subsidiary, Shanghai Fujian Equity Investment Fund Management. In April 2024, Fosun Capital, together with Wuhan Innovation Investment and Wuhan Fund, established a RMB3.0 billion industry fund focusing on the four major sectors of next generation information technology, dual carbon, intelligent manufacturing, and consumption.”

Given that Fosun has consistently promoted innovation within the Group and its subsidiaries, Wanda asked Qiyu to share some recent achievements in R&D, product, marketing and digital innovation. “Innovation is a crucial driving force in Fosun’s strategy,” he acknowledged. “In the first half of 2024, Fosun invested approximately RMB3.5 billion in R&D and innovation.

“In terms of R&D innovation, Trastuzumab was approved for marketing in the US, making it the first domestically manufactured biosimilar to be approved in China, the US, and the EU. Intuitive Fosun’s Ion robotic bronchoscopy received marketing approval from the NMPA. The commercialisation, clinical application and research of the resonance image-guided focused ultrasound brain therapy system (i.e. the ExAblate Neuro MRgFUS brain therapy system) are steadily progressing in the Chinese mainland, Hong Kong SAR, and Macau SAR. Fosun Kite’s CAR-T cell therapy has benefited over 700 lymphoma patients in China since its launch.

“Regarding product innovation, Sunvisioncapital Tourism launched the Silk Road Express, the first tourist train in China built to international standards,” he continued. “Additionally, FTG will introduce the world’s leading cultural and performance IPs into the upcoming Super Mediterranean project to build a world-class resort destination.”

“From a marketing perspective, the summer of 2024 saw the Nanxiang Steamed Bun Restaurant teaming up with global fashion powerhouse Balenciaga, while the Tong Han Chun Tang Chinese Pharmacy collaborated with The Beast perfume to create new products that made a big hit.

“Finally, digital innovations have included Fosun Insurance Portugal’s MyFidelidade app, which now has over 1.6 million registered users, exceeding 15% of Portugal’s total population. In addition, Club Med launched a new booking system and engine, with independent bookings having increased by 16% since 2019.”

The theme of Fosun’s 2024 interim results is “Core Strengths Power Promising Future.” Qiyu reflected on these results and revealed how each individual business segment performed. “In the first half of 2024, Fosun continued to adhere to two core growth drivers: innovation-driven technology and global operations,” he said. “Each business segment achieved significant results in innovation and globalisation. The Group’s total revenue continued to grow in the first half of 2024, reaching RMB97.84 billion. The Health segment contributed RMB23.26 billion, the Happiness segment contributed RMB43.17 billion, the Wealth segment contributed RMB26.95 billion, and the Intelligent Manufacturing segment contributed RMB5.33 billion, indicating a solid recovery in business fundamentals.”

He went on to expand on how management foresees each segment progressing in H2 2024, and which areas future investments will focus on. “Looking ahead, we will maintain our focus on ‘profound industry operations + industrial investment’ and continue to drive growth through technology innovation and global operations, striving to create a global ecosystem that fulfils the needs of one billion families in health, happiness and wealth,” he said. “The Health segment will enhance its operations through a close integration of global innovation and the industrial ecosystem, driving efficient and stable growth in ecosystem value. The Happiness segment will optimise its ‘operations + investment’ strategy globally, enhance its asset-light operation capabilities, and connect diversified industries and brands to build the Fosun C2M family happiness ecosystem.

“Meanwhile, the Wealth segment will optimise its business and capital structures to continuously scale up its insurance business while exploring merger and acquisition opportunities to drive development in the next decade. The Intelligent Manufacturing segment will focus on high-end industrial services, create an industrial platform with existing companies, and leverage core strengths such as global operations, innovation, and lean management to build industry-leading enterprises.”

Unlocking the Hidden Value: An Undervalued Enterprise is Poised for a Promising Future

As of the end of June 2024, the fair value of Fosun International’s investment assets was approximately RMB205.3 billion, while the adjusted net asset value was HK$17.4 per share. Qiyu discussed how the company intends to boost investor confidence in its future development and ensure that the share price reflects its intrinsic value. “Currently, Fosun International is trading at a significant discount, primarily due to the discount affecting conglomerates in the Hong Kong stock market and business diversification,” he explained. “In addition, macroeconomic cycles and the deleveraging process have further widened this discount. As the pandemic has ended, our businesses have fully recovered. Our overseas operations have been performing well and are expected to become a new growth driver. The Group has consistently sold non-core assets to generate cash, resulting in a significant reduction in debt. Meanwhile, we have been focusing on our core businesses, all of which are back on a healthy growth trajectory.

“Looking ahead, we will raise the return on invested capital of our businesses to 8-10%, strengthening cash flow and profits to increase the dividend payout ratio. Currently, our subsidiaries listed in the A-share and Hong Kong stock markets are significantly undervalued due to the overall market conditions, which in turn affects the Group’s share price and overall valuation.”

He revealed that Fosun has responded to these circumstances by actively increasing its shareholdings in subsidiaries. “We invested RMB20.08 million to increase our stake in Fosun Pharma last year, and we invested RMB105 million to increase our stake in Hainan Mining in the first half of this year,” he said. “Our subsidiaries have also engaged in share buybacks. As of the end of July, Fosun Pharma, Yuyuan, Shede Spirits, Hainan Mining, and Wansheng have collectively repurchased shares worth nearly RMB600 million.

“In addition, the Group has actively adopted measures such as share buybacks to demonstrate management’s confidence in the Group’s future development,” he added. “We will further deepen operations and strengthen strategic focus to raise our ratings, net profits, and dividend payout ratio. Moreover, Fosun is committed to advancing ESG development, and we are currently the only conglomerate in Greater China with an MSCI ESG rating of AA.

“As the macroeconomic cycle improves and the deleveraging phase nears its end, the business and valuation of our subsidiaries are gradually recovering, and Fosun International’s share price will also begin to reflect the intrinsic value of our assets.”