The industry that makes more money than real estate is “grave real estate”.
Recently, Fushouyuan (01448. HK), China’s largest listed company in the funeral industry, released financial reports. In 2021, the average sales service income of each operating tomb was 110800 yuan, about 3000 yuan higher than the average price in 2020 and 8000 yuan higher than the average price in 2019.
In 2020, the average sales unit price of operating tombs in Fushou garden increased by about 5% year-on-year. According to Shanghai E-House Real Estate Research Institute, the average transaction price of new commercial houses in first tier cities rose only 2.7% in the same year.
In 2021, cemetery sales began to increase, bringing profit growth space for a number of funeral concept stocks.
According to the financial report data, in 2021, the revenue of Fushouyuan was 2.326 billion yuan, a year-on-year increase of 22.9%; The net profit was 890 million yuan, a year-on-year increase of 17.5%. An Xianyuan China (00922. HK) increased its revenue by 11.52% in the half year ending September 2021 (April 2021 September 2021).
A-share “the first funeral share” Fortune Ng Fung Food (Hebei) Co.Ltd(600965) ( Fortune Ng Fung Food (Hebei) Co.Ltd(600965) . SH), the revenue increased by 28.66% and the net profit increased by 69.69% in the first three quarters of 2021.
Under the culture of filial piety, the special rigid demand supports the price of cemeteries, but the limited land obviously can not meet the ambition of funeral enterprises. In 2021, the funeral company acquired and expanded, and promoted the “living contract” in order to find a profit growth point outside the original cemetery sales business.
On April 1, the reporter of times weekly sent an interview outline to the official websites of an Xianyuan China, Fu Shouyuan and Fortune Ng Fung Food (Hebei) Co.Ltd(600965) and other enterprises on the rise and fall of tomb prices, mergers and acquisitions, industry competition, digitization and value-added services. As of press time, there was no response. The reporter of times weekly has called Fortune Ng Fung Food (Hebei) Co.Ltd(600965) Secretary Office for many times, but the phone has not been connectedP align = “center” the area of ecological tombs is less than 1m2
In recent years, the rise in cemetery prices is no secret.
The cemetery and funeral service income of Fushou garden mainly comes from economically developed provinces or municipalities directly under the central government such as Shanghai, Henan, Anhui and Jiangsu. In 2021, the average sales service income of each operating grave in Fushou garden was 110800 yuan, and more than 40% of the company’s revenue from cemetery and funeral services came from Shanghai.
Figure source: annual report of Fushou garden in 2021
On April 2, the reporter of times weekly learned from the staff of Fushou garden that the price of a cemetery in Fushou garden in Pudong, Shanghai is between 30000 yuan and 300000 yuan, the cheaper ecological burial price is between 30000 yuan and 100000 yuan, and the area of the tomb is within 1m2. The price is related to the size, spacing and greening of the tomb.
Fortune Ng Fung Food (Hebei) Co.Ltd(600965) financial report shows that Lingshan pagoda cemetery in Sanhe City, Hebei Province is located at the intersection of Beijing’s seventh Ring Road and Beijing Qinhuangdao expressway, and its customers are from Beijing, Tianjin and Hebei. The official website of Lingshan pagoda cemetery shows that the lowest quotation for different tomb types is between 19800 yuan and 158000 yuan. Among them, the cheapest tomb type is tree burial, and the most expensive is art tombstone.
On April 2, the reporter of times weekly consulted the staff of the cemetery and learned that the price difference of the above tomb types is mainly due to the different environment and stones, and the floor area difference is small. The smallest tomb type covers an area of about 0.4 m2, and the largest tomb type does not exceed 0.8 m2. A more affordable form of tree burial is a small lying tablet under a big tree without a grave.
The high price of the above cemetery tombs is not an example. Huajin securities estimated according to the caliber of the Ministry of civil affairs that from 2006 to 2018, the annual compound growth rate of the total income scale of China’s funeral service industry was about 8.8%, and the average price of funeral sales continued to riseP align = “center” gross profit margin far exceeds that of real estate industry
Supported by high prices, the funeral industry has a high gross profit margin.
Since the cemetery was acquired and entered the funeral industry in 2014, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) ‘s funeral service business has supported the company’s profits with high gross profit margin. From 2016 to 2020, the gross profit margin of Fortune Ng Fung Food (Hebei) Co.Ltd(600965) funeral business was 84.84%, 86.78%, 87.96%, 87.14% and 81.01% respectively, much higher than the gross profit margin of Fortune Ng Fung Food (Hebei) Co.Ltd(600965) ‘s animal husbandry and food processing industry of about 20% and the gross profit margin of catering industry of about 60%.
Even though the revenue contributed by Fortune Ng Fung Food (Hebei) Co.Ltd(600965) funeral business is less than 20% of the total revenue throughout the year, the annual reports of 2016 and 2017 said that the business contributed more than half of the company’s profits and remained the main business contributing profits in recent years.
Fortune Ng Fung Food (Hebei) Co.Ltd(600965) funeral business revenue accounted for only 0.8%, with a gross profit margin of 80%. Source: Fortune Ng Fung Food (Hebei) Co.Ltd(600965) 2020 Annual Report
According to Wande data, in the fiscal year 20162020, the gross profit margin of an Xianyuan China, whose main business is funeral, was no less than 63% per year. In the half year ending September 2021, the gross profit margin of sales reached 68.47%.
In contrast, for land related businesses, whether A-Shares or Hong Kong shares, mainstream real estate enterprises have not recorded such a high gross profit margin.
In 2021 and 2020, the overall gross profit margin (after deducting business tax and surcharges) of China Vanke Co.Ltd(000002) ( China Vanke Co.Ltd(000002) . SZ), the real estate enterprise with the largest market value of a shares, was 17.2% and 22.8%; The gross profit margin of country garden (02007. HK) of Hong Kong stocks was 17.74% and 21.8%, and that of China Resources Land (01109. HK) was 26.97% and 30.86%P align = “center” funeral enterprise expansion
In 2021, many funeral companies ushered in profit improvement.
The Lingshan pagoda cemetery, the main cemetery under Fortune Ng Fung Food (Hebei) Co.Ltd(600965) banner, achieved a net profit of 43.23 million yuan in the first half of 2021, a year-on-year increase of 312%. Caibao said that the epidemic situation was stable, customers went to the cemetery to negotiate and gradually returned to normal. The company promoted sales by transforming the environment of the tomb area and enriching the types of tomb sites.
In 2021, Fushouyuan sold 24700 tombs, an increase of 10300 over the previous year. Among them, 15100 operating tombs were sold, with a year-on-year increase of 15.6%. This income was 1.676 billion yuan, with a year-on-year increase of 19%. In the half year ending September 2021, an Xianyuan China realized a sales revenue of HK $143 million from tomb and niche, an increase of 12.3% year-on-year.
Promoting sales in a limited area can no longer meet the expansion ambition of funeral companies. In 2021, Fushouyuan began a large-scale acquisition.
In March 2021, Fushouyuan signed an investment agreement with Shandong Heze fuluyuan to acquire 90% equity of the latter; Anhui Shouyuan and Chaobei Culture Co., Ltd. completed the acquisition of all the shares of Anhui Shouyuan and Chaobei Culture Co., Ltd. in May; In June, it signed a contract with Dalian Bay cultural Memorial Park project to develop business in Northeast China; In October, Fushouyuan signed a contract to acquire 30% equity of Hebei Zhuolu longhui Tianfu Yuanbaoshan Development Management Co., Ltd., so as to realize its business in Beijing, Tianjin and Hebei.
After the completion of several acquisitions, the business of Fushouyuan has entered more than 40 cities in 19 provinces, autonomous regions or municipalities directly under the central government.
The acquisition and expansion of Fushouyuan is not an example.
In November 2021, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) said on the investor interaction platform that it is a very effective way for Fushouyuan to increase land reserves and improve profit level through mergers and acquisitions, and Fortune Ng Fung Food (Hebei) Co.Ltd(600965) has never stopped the pace of market expansion.
However, funeral enterprises are not without risks in expanding the market through acquisition.
In 2018, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) invested 180 million yuan in Hunan Shaoshan tiandefudi cemetery Co., Ltd. (hereinafter referred to as “tiandefudi”) and obtained 60% equity of the latter. However, Tiande Fudi failed to fulfill its performance commitment for two consecutive years, resulting in a net profit loss of RMB 11.82 million in 2019 and RMB 5.8 million in 2020. In 2020, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) only found that the original shareholders of tiandefudi cemetery had undisclosed supplementary agreements and may have large liabilities. Then, tiandefudi was put on file for investigationP align = “center” “white business” faces the challenge of consumption degradation
Behind the high gross profit margin of the industry, funeral companies are not without hidden worries. For the funeral industry, in addition to the path of increasing land reserves to promote sales, enterprises also need to adjust their business structure, hedge against changes in the market environment and seek performance growth.
There are signs that the weak growth of tomb sales in some years, the decline of customers’ consumption intention and other changes in the market environment have affected the performance growth.
From 2016 to 2020, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) annual revenue did not increase by more than 7% year-on-year, and even showed negative growth in three years. In 2017, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) revenue and net profit decreased by 0.76% and 15.26% respectively, revenue in 2019 decreased by 0.47%, and revenue and net profit in 2020 decreased by 24.92% and 42.37% respectively.
In 2019, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) annual report showed that the revenue of funeral business decreased by 29.03%, which was mainly caused by the impact of the environment, the increase of market competition, the decline of sales volume, the decline of customer selection grade and other reasons.
In recent years, the annual revenue of Fushou garden and anxien garden in China has not increased explosively.
From 2018 to 2020, the revenue of Fushouyuan increased by 11.8%, 12.1% and 2.3% respectively. The 2018 financial report shows that the number of operational tombs sold in comparable cemeteries in that year is less than that in previous years.
In the fiscal year 20182021, the revenue of anxienyuan China increased by about 28%, 8%, 29% and 4% respectively. In fiscal year 2021, where the revenue growth was slow, the sales of its flagship project, Zhejiang anxienyuan tomb, decreased.
In order to promote sales, many companies are adjusting their business structure to meet consumer demand.
In terms of the overall market, high-end art tombs are those with higher tomb type prices, while ecological tombs save more land and generally have low prices. In recent financial reports, Fushouyuan pointed out that the company is expanding the proportion of ecological land-saving products and art tombs, reducing the proportion of traditional tombs and improving land use efficiency. In fiscal year 2021, an Xianyuan China also focused on small-scale and personalized land-saving ecological burial, such as lawn burial, tree burial, Yellow River burial, etc.
At the same time, Fushouyuan also launched the pre life contract business to bring customer reserves by locking in the non funeral and cemetery sectors of customers in advance. In 2021, the company signed 13800 contracts, a year-on-year increase of 133.1%. In fiscal year 2021, an Xianyuan China launched an innovative business of crystal production.
The impact of the epidemic on the grave sales and other businesses of funeral companies has not completely disappeared. Fushou garden launched innovative services such as Fushou cloud Memorial sweeping, and Fortune Ng Fung Food (Hebei) Co.Ltd(600965) launched Internet services such as cloud Memorial sweeping and Valet Memorial sweeping. However, with regard to the effect of launching digital services, Fushou garden, Fortune Ng Fung Food (Hebei) Co.Ltd(600965) and an Xianyuan China did not reply to the reporter of the times weekly.
