HKG:0656 - Fosun International Limited

[Guest hellsten]

"Fosun International is Building China's Berkshire":

http://www.institutionalinvestor.com/Popups/PrintArticle.aspx?ArticleID=2923338

 

Guo Guangchang, chairman and co-founder of the group, likens Fosun’s value investing and long-term strategic approach to that of Warren Buffett. “With regard to the business models Fosun would like to learn from, Mr. Buffett’s Berkshire Hathaway is definitely on our list,” says Guo, 44. Guo and Liang are certainly on their way to amassing Buffett-style wealth. According to Forbes magazine, Guo is the 27th-richest person in China, with a worth of some 17.5 billion yuan, while Liang ranks 132nd with 6.5 billion yuan.

 

http://www.horasis.org/The%20Straight%20Shooter.php

 

He ticks off points and numbers as he speaks - sort of like a walking PowerPoint presentation. Why is Fosun not a typical conglomerate? Three factors distinguish Fosun, he says: First, it has steady income streams from its industrial companies; second, it has a big, high-growth investment business, including a private equity arm generating, on average, a 43 per cent internal rate of return, a cash-flow metric, since it started in 2000; third, its asset management unit, with assets under management of 10 billion yuan (S$2 billion), is growing fast. 'We are not just operating in multiple industries,' he concludes.

 

Fosun, he suggests, is rather like Warren Buffett's Berkshire Hathaway. Mr Liang and his three co-founders want Fosun to create an anchor revenue stream from insurance and asset management to support its investment activity in more fickle lines, following in the footsteps of the Oracle of Omaha.

 

 

Market Cap (M HKD)  30,053.06

Price/Book (mrq)  0.7444

Current P/E Ratio (ttm)  15.6871

Estimated P/E(12/2012)  11.1050

Source:

http://www.bloomberg.com/quote/656:HK

 

Wikipedia:

http://en.wikipedia.org/wiki/Fosun_International_Limited

 

Fosun's businesses cover Industrial operations, Investment (including strategic investments), Asset Management, and Insurance with many subsidiary companies in each business.

 

With the Chinese property bubble at its peak, I wouldn't invest in this company. However, it might be a good investment at some point.

[giofranchi]

Thank you very much hellsten!

I didn’t know of Fosun International, but it seems quite interesting, and I will surely look into it.

 

giofranchi

[giofranchi]

7-yr BV CAGR = 55.3%

7-yr NPV CAGR = 21.1%

 

http://media.corporate-ir.net/media_files/IROL/19/194273/Fosun_International_2011_annual_result_presentation_EN_final_20120413.pdf

 

giofranchi

[Guest hellsten]

7-yr BV CAGR = 55.3%

7-yr NPV CAGR = 21.1%

 

http://media.corporate-ir.net/media_files/IROL/19/194273/Fosun_International_2011_annual_result_presentation_EN_final_20120413.pdf

 

giofranchi

 

Those are very impressive numbers, but as with all Chinese companies I wonder how much they can be trusted. I have no idea...

 

The founders and executives are very young (~45). I guess this could be both good and bad:

Fosun founders and other key senior executives have worked together for over 17 years.  They jointly hold

79.46% stake in Fosun Int’l, making their interests fully aligned with that of the public shareholders.

 

Fool.com article:

http://www.fool.com/investing/international/2011/05/26/meet-chinas-warren-buffett.aspx

 

Goldman Sachs:

http://www.lj168.com/html/pdf_t/2012/09/29/1227237196704.swf

 

Morgan Stanley (2011):

http://www.scribd.com/doc/48824553/Ms-China-Persepective

 

However, around 50% of Fosun’s NAV and 90%of its 2011e earnings are tied to cyclical businesses, such as steel and property, which restricts the group’s ability todiversify its risk in slowdowns

 

Stub valuation also seems attractive at 68% discount to NAV, below its historical average of 53%

 

Institutional Investor article:

http://www.scribd.com/doc/72681997/Institutional-Investor

[giofranchi]

Those are very impressive numbers, but as with all Chinese companies I wonder how much they can be trusted. I have no idea...

 

hellsten,

I have read Mr. Guangchang letters to shareholders. I was not particularly impressed by his first three public letters (2007, 2008, 2009), but the 2010 and 2011 missives were much better, and full of great information. The guy is improving very fast!

I do not tend to trust people, instead I trust (or distrust) their process, their “modus operandi”. If I can understand what they are doing and why, I am able to judge if they will be successful, or if they will fail. And in my experience satisfied, fulfilled, and therefore rich people are much more reliable than unsatisfied, unfulfilled, and therefore poor people. Well, the 2010 and 2011 letters to shareholders are full of interesting insights into their ways of doing business, investing, and growing the Fosun platform.

Some examples:

 

In order to realise our vision, in the future, we will continue to benchmark against the world’s top companies and focus our execution in the following areas:

First is to be disciplined when it comes to investing, which can also be interpreted as “insisting on value-oriented investment philosophy”. The Group has realised decent returns on many investments in the past. Looking back, I believe the primary reason for our success was our understanding of and adherence to value. Today, although our scale is much larger than that at the time of establishment, we should always adopt a prudent manner, insisting on value-oriented investment approach as we evaluate every new project. This is how we, the founder team, require ourselves to act, and this will be how we require all our investment managers to follow.

 

Second is to make continuous efforts to enhance the capability at the holding group level to support investees to optimise their operation. A significant portion of shareholder value increase comes from the growth of the value of investees. To accelerate growth from this source, first of all, we would choose to work with the best teams in respective industries; secondly, as an active shareholder, we will assist the management of the investees to optimise the operating efficiency via board members appointed by us. For subsidiaries, we mainly participate in: 1. setting company strategies; 2. recommending core management team; 3. designing performance-linked incentive remuneration scheme; 4. risk management; 5. making important investment decisions. For other investees, we will actively create additional value for them in areas such as supply chain management, human resources support, gaining access to the capital market, sharing strategic resources etc, according to different needs. This year, the holding group level will also actively explore the means to discover synergetic development opportunities between the holding group level and its investees in a more systematic fashion in order to increase shareholder value of the Company while creating additional value for investees.

 

Third is to continue to lower our financing costs and secure more sources for long-term capital. In the past few years both I myself and my management have been seriously thinking about the development direction and business model of the Group. We have also visited and studied many leading international investment institutions. We deeply felt that for any successful investment company, it is crucial to have long term, secured funding sources at a reasonable cost. Therefore, it will be an important task which requires our dedicated and unremitting efforts to develop a multi-channel financing system and seek sustainable sources for quality capital.

 

Last but not least is the cultivation and recruitment of talents and elites. Compared with those entrepreneurs who have built a successful enterprise single-handedly, I felt deeply that I myself was fortunate. It is because ever since the first day when I started this business, I had partners of the same vision who worked hard with me. Those include members of the founder team as well as key management of today. In the future, as we will continue to contribute all our efforts to this company, we will also continue to cultivate and attract four types of talents, namely industrialists, investors, bankers and experts in improving management efficiency. We hope that our teams not only possess state-of-the-art professional knowledge but also entrepreneurial spirits, who agree upon our culture and will always uphold the principle of maximising shareholder value in everyday work and all decision-making process. In order to attract and maintain such talents, the Group will also adopt market rules and actively formulate and improve effective incentive remuneration plans to truly reflect our idea of creating value and sharing development.

 

I also like the strategy of relying on their “three growth engines, namely industrial operations, investment and asset management”, to pursue their goal of becoming “a premium investment group with a focus on China’s growth momentum”. Mr. Guangchang stresses many times the idea of helping and facilitating the introduction of global brands into the Chinese market, “combining China’s growth momentum with global resources”:

 

In 2011, the European debt crisis affected negatively on the global economy, however, it brought us opportunities to “combining China’s growth momentum with global resources”. There are certain branded enterprises, which have Europe as their major market, experienced the bottleneck in growing in their local markets, and have relatively lower valuations; on the other hand, the industries in which these enterprises operate have great potential in the PRC market. Adhering to the investment principle of “combining China’s growth momentum with global resources”, Fosun looked global wise to identify the leading enterprises in the industry, who suffered from a stagnant profit growth in the European and U.S. markets, but would have high growth potential in China, and with the plan to enter into China’s market. We took the advantage of Fosun’s solid industrial and channel base in China, helped them achieve fast growth in China, and ultimately enhance its values in the global market. Following the successful investment in Club Med in 2010, we have also successfully invested in Folli Follie in Greece in May 2011, which was also our first investment into the international fashion brand. In 2011, Club Med’s global revenue increased by 5.2% with profitability turn-around. Club Med plans to open its second resort hotel in China during 2012, and will have five altogether in China by 2015. In the future, China will become its second largest market in the world just behind France. In 2011, Folli Follie significantly increased the number of stores in China, its global revenue and net profit increased by 5.1% and 4.7% for the first 3 quarters in 2011 respectively. We are delighted to see that our esteemed investment model achieved positive results, which fills us with confidence in the investments as Club Med and Folli Follie, and in the future, we will speed up into the practice of “combining China’s growth momentum with global resources”, mainly targeting at consumption upgrade, financial services and manufacturing upgrade.

 

And again:

 

We see that China is migrating into the world’s major consumer and capital giant. The consumption of PRC residents grow rapidly with total consumption ranking the third in the world in 2010 and about to surpass Japan to become the global second largest. In 2010, the percentage of consumption to gross domestic product was only 35% in China with a huge room for increment as compared with 71% for the United States. The transformation of China’s economy not only opened up markets for the growth of companies engaged in the consumption business in China, but also opened up markets for the investments in China’s consumer industry. On the other hand, in 2011, there were 356 companies launching initial public offerings (“IPO”) in the PRC with total financing amounting to approximately USD61.53 billion, accounting for 41.9% of the global listing and 52.1% of the IPO financing in the world. The prosperous capital market of China will also further attract both the domestic and international capital to seek investment opportunities in China. We believe that the growth of China’s consumer market will present huge investment opportunities that are driven by capital, and also make it possible for the sustained operation of our investment strategy of “combining China’s growth momentum with global resources”.

 

He also seems to understand the usefulness of insurance float:

 

We regard insurance business as a good means to connect Fosun’s investment capability to quality long-term capital. In this way, the insurance business will be the business that we will make efforts to build up in the future.

 

I also like their focus on gradually shifting from cyclical business to more non-cyclical, consumer related assets:

 

Going through the business individually, our overall industrial operations still have a relatively higher proportion of cyclical businesses. However, as we group them in an effective way, our industrial portfolio has maintained a stable growth in the past 20 years. For example, over the last seven years, the compound annual growth rate of the contribution from this industrial portfolio to our net profits amounted to 27.0%, demonstrating good resilience against cyclicality. Going forward, we strive to maintain a sustainable growth of our industrial portfolio, and at the same time, we will actively explore opportunities to continue to optimise the asset allocation of our industries portfolio, largely increasing the proportion of non-cyclical assets.

For our investment, we think that it is a good time for investment now. In 2012, we will continue to practice the investment strategy of “combining China’s growth momentum with global resources”, seek the projects that meet the investment target characteristics and our values principles, to explore new opportunities. In the meantime, we will continue to drive the business development of the Club Med and Folli Follie in China, to gradually realise the value of our investment.

…

In 2012, we will speed up the preparatory work for Pramerica Fosun Life Insurance with an aim to commence operation by the year end. Through nurture, we hope the insurance will become one of our principal businesses in the future. On top of this, we still have to centralise our supreme resources and continue to seek opportunities to increase our investment in the finance sector, including banking, to obtain a higher investment return in tandem with the development trend of China’s financial services industry.

We are confident of China’s economic outlook and await the economic recovery in the United States and the recuperation in Europe. On the basis of our global perspective, we will duly capture the opportunity to improve the allocation and distribution of global assets in response to the economic development in China and of the world, and to lay a solid foundation for the long-term sustainable development of Fosun. Meanwhile, we must stick to our strategy, stick to our value principles, and create values to the most extent, maximise and realise them through our platform.

 

They can also boast very renowned international partners: Mr. John Snow, former Treasury Secretary of the United States is advisor to the Board, the Carlyle Group works with them in choosing global brands to invest in and introduce to the Chinese market, Prudential has became Fosun’s first international LP.

 

I have checked their web-site, and it is full of information: besides very exhaustive semi-annual and annual presentations, they also publish a monthly newsletter, to better and more frequently communicate with shareholders, keeping them in touch with the advancements in their strategy. I guess they realize it is important to gain the trust of foreign investors, and they put emphasis on being as easy to understand and follow as possible.

 

Finally, I think they are doing all the right things to keep on growing and compounding their capital for a very long time. Imho, they are doing all it takes to be ever more satisfied, fulfilled, and therefore rich people! That’s a very good reason to give them a chance!

 

That being said, it doesn’t mean I will invest in Fosun next Monday morning… but I will surely keep them on my radar! They are very young, and therefore there will be plenty of time to partner with them!

One final thought: if there is a way to capitalize on China’s growth, today Fosun is the best way I am aware of.

 

giofranchi

[Guest hellsten]

Thank you giofranchi. It's very clear that Fosun is trying hard to build a company like Berkshire, or at least that's the picture they want to sell.

 

Guangchang claims they have a value-oriented investment philosophy. I haven't tried to analyze their investments in detail to verify this claim, but they seem to like Greece and have considered investing in OPAP:

http://www.reuters.com/article/2012/11/10/greece-privatisation-opap-idUSL5E8MA0UR20121110

 

I guess they are value investors to some degree. It's also reassuring that they are looking for float and long-term capital.

 

Like everyone else, I'm cautious about investing in Chinese companies. I don't know the CEO at all. A large part of Fosun's revenue is from steel, real estate and mining. This worries me, but it will hopefully give me a chance to buy Fosun at a much lower price.

 

The only company in China that I'm currently comfortable investing in is BYD:

http://www.byd.com/investor/base_information.html

 

Charlie Munger likes it, so it has passed his screens. Fosun doesn't seem to have passed the screens of any value investors even though it's one of the largest private companies in China.

 

Anyway, Fosun is interesting and I will follow it. It will at least give me a chance to learn more about investing in China.

[twacowfca]

Those are very impressive numbers, but as with all Chinese companies I wonder how much they can be trusted. I have no idea...

 

hellsten,

I have read Mr. Guangchang letters to shareholders. I was not particularly impressed by his first three public letters (2007, 2008, 2009), but the 2010 and 2011 missives were much better, and full of great information. The guy is improving very fast!

I do not tend to trust people, instead I trust (or distrust) their process, their “modus operandi”. If I can understand what they are doing and why, I am able to judge if they will be successful, or if they will fail. And in my experience satisfied, fulfilled, and therefore rich people are much more reliable than unsatisfied, unfulfilled, and therefore poor people. Well, the 2010 and 2011 letters to shareholders are full of interesting insights into their ways of doing business, investing, and growing the Fosun platform.

Some examples:

 

In order to realise our vision, in the future, we will continue to benchmark against the world’s top companies and focus our execution in the following areas:

First is to be disciplined when it comes to investing, which can also be interpreted as “insisting on value-oriented investment philosophy”. The Group has realised decent returns on many investments in the past. Looking back, I believe the primary reason for our success was our understanding of and adherence to value. Today, although our scale is much larger than that at the time of establishment, we should always adopt a prudent manner, insisting on value-oriented investment approach as we evaluate every new project. This is how we, the founder team, require ourselves to act, and this will be how we require all our investment managers to follow.

 

Second is to make continuous efforts to enhance the capability at the holding group level to support investees to optimise their operation. A significant portion of shareholder value increase comes from the growth of the value of investees. To accelerate growth from this source, first of all, we would choose to work with the best teams in respective industries; secondly, as an active shareholder, we will assist the management of the investees to optimise the operating efficiency via board members appointed by us. For subsidiaries, we mainly participate in: 1. setting company strategies; 2. recommending core management team; 3. designing performance-linked incentive remuneration scheme; 4. risk management; 5. making important investment decisions. For other investees, we will actively create additional value for them in areas such as supply chain management, human resources support, gaining access to the capital market, sharing strategic resources etc, according to different needs. This year, the holding group level will also actively explore the means to discover synergetic development opportunities between the holding group level and its investees in a more systematic fashion in order to increase shareholder value of the Company while creating additional value for investees.

 

Third is to continue to lower our financing costs and secure more sources for long-term capital. In the past few years both I myself and my management have been seriously thinking about the development direction and business model of the Group. We have also visited and studied many leading international investment institutions. We deeply felt that for any successful investment company, it is crucial to have long term, secured funding sources at a reasonable cost. Therefore, it will be an important task which requires our dedicated and unremitting efforts to develop a multi-channel financing system and seek sustainable sources for quality capital.

 

Last but not least is the cultivation and recruitment of talents and elites. Compared with those entrepreneurs who have built a successful enterprise single-handedly, I felt deeply that I myself was fortunate. It is because ever since the first day when I started this business, I had partners of the same vision who worked hard with me. Those include members of the founder team as well as key management of today. In the future, as we will continue to contribute all our efforts to this company, we will also continue to cultivate and attract four types of talents, namely industrialists, investors, bankers and experts in improving management efficiency. We hope that our teams not only possess state-of-the-art professional knowledge but also entrepreneurial spirits, who agree upon our culture and will always uphold the principle of maximising shareholder value in everyday work and all decision-making process. In order to attract and maintain such talents, the Group will also adopt market rules and actively formulate and improve effective incentive remuneration plans to truly reflect our idea of creating value and sharing development.

 

I also like the strategy of relying on their “three growth engines, namely industrial operations, investment and asset management”, to pursue their goal of becoming “a premium investment group with a focus on China’s growth momentum”. Mr. Guangchang stresses many times the idea of helping and facilitating the introduction of global brands into the Chinese market, “combining China’s growth momentum with global resources”:

 

In 2011, the European debt crisis affected negatively on the global economy, however, it brought us opportunities to “combining China’s growth momentum with global resources”. There are certain branded enterprises, which have Europe as their major market, experienced the bottleneck in growing in their local markets, and have relatively lower valuations; on the other hand, the industries in which these enterprises operate have great potential in the PRC market. Adhering to the investment principle of “combining China’s growth momentum with global resources”, Fosun looked global wise to identify the leading enterprises in the industry, who suffered from a stagnant profit growth in the European and U.S. markets, but would have high growth potential in China, and with the plan to enter into China’s market. We took the advantage of Fosun’s solid industrial and channel base in China, helped them achieve fast growth in China, and ultimately enhance its values in the global market. Following the successful investment in Club Med in 2010, we have also successfully invested in Folli Follie in Greece in May 2011, which was also our first investment into the international fashion brand. In 2011, Club Med’s global revenue increased by 5.2% with profitability turn-around. Club Med plans to open its second resort hotel in China during 2012, and will have five altogether in China by 2015. In the future, China will become its second largest market in the world just behind France. In 2011, Folli Follie significantly increased the number of stores in China, its global revenue and net profit increased by 5.1% and 4.7% for the first 3 quarters in 2011 respectively. We are delighted to see that our esteemed investment model achieved positive results, which fills us with confidence in the investments as Club Med and Folli Follie, and in the future, we will speed up into the practice of “combining China’s growth momentum with global resources”, mainly targeting at consumption upgrade, financial services and manufacturing upgrade.

 

And again:

 

We see that China is migrating into the world’s major consumer and capital giant. The consumption of PRC residents grow rapidly with total consumption ranking the third in the world in 2010 and about to surpass Japan to become the global second largest. In 2010, the percentage of consumption to gross domestic product was only 35% in China with a huge room for increment as compared with 71% for the United States. The transformation of China’s economy not only opened up markets for the growth of companies engaged in the consumption business in China, but also opened up markets for the investments in China’s consumer industry. On the other hand, in 2011, there were 356 companies launching initial public offerings (“IPO”) in the PRC with total financing amounting to approximately USD61.53 billion, accounting for 41.9% of the global listing and 52.1% of the IPO financing in the world. The prosperous capital market of China will also further attract both the domestic and international capital to seek investment opportunities in China. We believe that the growth of China’s consumer market will present huge investment opportunities that are driven by capital, and also make it possible for the sustained operation of our investment strategy of “combining China’s growth momentum with global resources”.

 

He also seems to understand the usefulness of insurance float:

 

We regard insurance business as a good means to connect Fosun’s investment capability to quality long-term capital. In this way, the insurance business will be the business that we will make efforts to build up in the future.

 

I also like their focus on gradually shifting from cyclical business to more non-cyclical, consumer related assets:

 

Going through the business individually, our overall industrial operations still have a relatively higher proportion of cyclical businesses. However, as we group them in an effective way, our industrial portfolio has maintained a stable growth in the past 20 years. For example, over the last seven years, the compound annual growth rate of the contribution from this industrial portfolio to our net profits amounted to 27.0%, demonstrating good resilience against cyclicality. Going forward, we strive to maintain a sustainable growth of our industrial portfolio, and at the same time, we will actively explore opportunities to continue to optimise the asset allocation of our industries portfolio, largely increasing the proportion of non-cyclical assets.

For our investment, we think that it is a good time for investment now. In 2012, we will continue to practice the investment strategy of “combining China’s growth momentum with global resources”, seek the projects that meet the investment target characteristics and our values principles, to explore new opportunities. In the meantime, we will continue to drive the business development of the Club Med and Folli Follie in China, to gradually realise the value of our investment.

…

In 2012, we will speed up the preparatory work for Pramerica Fosun Life Insurance with an aim to commence operation by the year end. Through nurture, we hope the insurance will become one of our principal businesses in the future. On top of this, we still have to centralise our supreme resources and continue to seek opportunities to increase our investment in the finance sector, including banking, to obtain a higher investment return in tandem with the development trend of China’s financial services industry.

We are confident of China’s economic outlook and await the economic recovery in the United States and the recuperation in Europe. On the basis of our global perspective, we will duly capture the opportunity to improve the allocation and distribution of global assets in response to the economic development in China and of the world, and to lay a solid foundation for the long-term sustainable development of Fosun. Meanwhile, we must stick to our strategy, stick to our value principles, and create values to the most extent, maximise and realise them through our platform.

 

They can also boast very renowned international partners: Mr. John Snow, former Treasury Secretary of the United States is advisor to the Board, the Carlyle Group works with them in choosing global brands to invest in and introduce to the Chinese market, Prudential has became Fosun’s first international LP.

 

I have checked their web-site, and it is full of information: besides very exhaustive semi-annual and annual presentations, they also publish a monthly newsletter, to better and more frequently communicate with shareholders, keeping them in touch with the advancements in their strategy. I guess they realize it is important to gain the trust of foreign investors, and they put emphasis on being as easy to understand and follow as possible.

 

Finally, I think they are doing all the right things to keep on growing and compounding their capital for a very long time. Imho, they are doing all it takes to be ever more satisfied, fulfilled, and therefore rich people! That’s a very good reason to give them a chance!

 

That being said, it doesn’t mean I will invest in Fosun next Monday morning… but I will surely keep them on my radar! They are very young, and therefore there will be plenty of time to partner with them!

One final thought: if there is a way to capitalize on China’s growth, today Fosun is the best way I am aware of.

 

giofranchi

 

That looks good.  How do they handle unfavorable developments?  Do they discuss them?  Do they admit their mistakes and try to profit from them?  Or minimize them?

[giofranchi]

Fosun doesn't seem to have passed the screens of any value investors even though it's one of the largest private companies in China.

 

Well, from the articles you posted I learnt that both Saudi Prince Alwaleed and Hong Kong billionaire Li Ka-shing invested in Fosun’s IPO. They might not properly be called “value investors”, but they surely are very accomplished businessmen (that is an understatement!!). And I reckon their interest in Fosun to be a great endorsement of the quality of its investment platform.

 

giofranchi

 

[giofranchi]

That looks good.  How do they handle unfavorable developments?  Do they discuss them?  Do they admit their mistakes and try to profit from them?  Or minimize them?

 

I think a company that during the last 7 years increased BV at a 55% CAGR might not have encountered serious bumps in the road yet… so I guess yours is not an easy question to answer, though a very important one!

Anyway, here is how Mr. Guangchang commented steel operating results in his 2011 Review:

 

As noted, due to the down-turn in the global economy, the austerity measures on the property market in China, the slow-down in the automotive market growth and the decreasing growth rate in fixed assets investment, the demand from major steel consumption industries in China weakened, which resulted in a drop in the growth rate of steel consumption, and revealed the conflicts related to over-capacity in the steel industry. The profitability of the core business in steel enterprises has been retreated to a very low level. According to the statistics of China Iron and Steel Association, the profit margin of the major large and medium-sized steel enterprises was 2.4%, far below the average of 6.5% for the industrial enterprises at a nationwide scale for the same period. Under the negative impacts, Nanjing Iron & Steel, our subsidiary, posted a weak performance on its overall sales in 2011, even though it achieved breakthrough in the expansion of product types, in particular high value-added steel products, such as the mass production of 9 Ni steel and it maintained high market share in special steel, like oil tanker plate. The net profit for Nanjing Iron & Steel in 2011 decreased significantly over last year, but still maintained certain profitability. According to the statistics of China Iron and Steel Association, the loss-making steel enterprises in 2011 increased to eight, representing 10.4% of the industry players.

 

It seems to me they recognized and openly admitted difficulties (over-capacity in the steel industry), while also trying to find some alternatives: for instance, shifting production to stainless steel and other special steels.

 

twacowfca,

sorry for this most unsatisfactory answer of mine… understand I just started studying this company yesterday… :)

 

giofranchi

 

[giofranchi]

It should also be pointed out the fact that Fosun founders and other key senior executives jointly hold a 79.46% stake in Fosun Int’l, making their interests fully aligned with those of the public shareholders.

 

giofranchi

[HJ]

The numbers are certainly impressive.  But keep in mind the back drop under which the historical track record was established.  They started with medicine distribution business, which they essentially got for free in the government privatization program, then got the steel business, the real estate business, etc., etc.  The engine of wealth accumulation here is not in operating a business particularly well, but ability to acquire cheap assets in wide array of industries.  Do they have more in common with Berkshire Hathaway or Russian Oligarchs? 

 

Over the past 15-20 years, there have been many Chinese multi-billionaires who seemingly came out of no where.  If they were ever to tally up their rate of returns in that fashion, the numbers would have been equally impressive, or even more so for some that shy away from publicity.  I forgot the exact number, but a shockingly large number of former richest men in China are now in jail.  Not necessarily because they did anything that's out of the norm, but because their political umbrella fell out of power. 

 

None of this is to disparage what Guo and Liang has accomplished over the past 2 decades.  You may in fact reach the conclusion that as long as they are willing to let the public share holders participate in their capabilities in China, this is as good a vehicle to participate in China as any.  Carlyle and Pramerica obviously have decided that these are the guys they want to partner with in China.  But neither bought their public equity.  Just keep in mind the macro back drop when forming your opinion of what the future rate of accumulation will be.

[giofranchi]

The numbers are certainly impressive.  But keep in mind the back drop under which the historical track record was established.  They started with medicine distribution business, which they essentially got for free in the government privatization program, then got the steel business, the real estate business, etc., etc.  The engine of wealth accumulation here is not in operating a business particularly well, but ability to acquire cheap assets in wide array of industries.  Do they have more in common with Berkshire Hathaway or Russian Oligarchs? 

 

Over the past 15-20 years, there have been many Chinese multi-billionaires who seemingly came out of no where.  If they were ever to tally up their rate of returns in that fashion, the numbers would have been equally impressive, or even more so for some that shy away from publicity.  I forgot the exact number, but a shockingly large number of former richest men in China are now in jail.  Not necessarily because they did anything that's out of the norm, but because their political umbrella fell out of power. 

 

None of this is to disparage what Guo and Liang has accomplished over the past 2 decades.  You may in fact reach the conclusion that as long as they are willing to let the public share holders participate in their capabilities in China, this is as good a vehicle to participate in China as any.  Carlyle and Pramerica obviously have decided that these are the guys they want to partner with in China.  But neither bought their public equity.  Just keep in mind the macro back drop when forming your opinion of what the future rate of accumulation will be.

 

HJ,

you are right and I agree with you 100%.

That’s precisely why I would not invest in Fonsun right away. In my experience political backing is as dangerous and unpredictable as it gets… Anyway, both Guo and Liang are still very young: there will be plenty of time to watch them, to better learn how they operate, and to get confident of the fact they actually have more in common with Berkshire than Russian Oligarchs.  ;)

Thanks for your thoughtful remarks!

 

giofranchi

[Guest hellsten]

Fosun Group, the Chinese private conglomerate, has unveiled a reinsurance subsidiary to tap into Asia's "underdeveloped" market.

 

The new reinsurer, Peak Reinsurance Co Ltd, is Fosun's fourth investment in the insurance sector, and is part of the Shanghai-based company's ambition to build itself into a global business empire that combines industry, investment and insurance.

 

The establishment of Peak Re marks the introduction of China's second reinsurer.

 

Fosun has launched the new venture in partnership with International Financial Corp, a member of the World Bank Group, which invested $81.95 million for a 14.9 percent stake. Fosun has invested $468.05 million to hold 85.1 percent of the stock.

 

The new company will function as an insurer for insurance companies, providing non-life reinsurance policies for insurers to reduce their risk exposure.

 

Peak Re's only competitor in the nation is the State-owned enterprise China Reinsurance (Group) Corp.

…

Less than 22 percent of the total economic loss caused by natural disasters in Asia was insured in 2011, while comparable figures in the US stood at around 63 percent and Europe at 50 percent, according to Peak Re.

 

http://www.chinadaily.com.cn/cndy/2013-01/10/content_16100717.htm

[gfp]

A bit more detail on the Peak Re launch from Insurance Insider (sorry it's a bit long for a message board post):

-------------

 

"Asia Pacific reinsurance start-up Peak Re was met with "overwhelming demand" when the $550mn entity started underwriting ahead of the 1.1 renewals, its founders told The Insurance Insider.

 

The 21-strong firm which is based in Hong Kong, received its AM Best financial strength rating of A- on 28 December, the day it opened its doors for business.

 

Although the traditional renewal date for Asian business is 1.4, the firm said it has already experienced strong demand.

 

"We received so much business the last few days before the renewals, we could not even handle it. It was absolutely unexpected that we could get such a response. It was fantastic," said an ebullient Franz Hahn, CEO and co-founder of Peak Re.

 

Hahn, the former Swiss Re China CEO, explained the majority of its initial business came from China as well as from Indonesia, and the Philippines.

 

Hahn along with co-founder and chief underwriting officer (CUO) Eckhart Roth have spent the previous two-and-half years developing relationships with international brokers and local insurers in the region.

 

The company is majority backed by China-focused investment group Fosun International Ltd, which has put in $468.05mn.

 

The remaining $81.95mn was provided by the International Finance Group (IFC), a World Bank unit focused on private sector development.

 

Hahn said the IFC is likely to be involved for the next decade but added that Peak Re was not looking to widen its investor base, despite investor interest.

 

In response to concerns of over-capacity in the region, Roth said that underwriters which used to write Asian Pacific business for risk diversification purposes had "certainly learned their lesson" and had either exited the region or were funnelling "the proper resources" towards the area.

 

The CUO said: "You need to be a part of the fabric of the market and its local gossip network and to understand the products in detail in order to beat the market over time."

 

Hahn also pointed out that roughly three quarters of economic losses stemming from natural catastrophes in Asia Pacific are uninsured.

 

"You can't call this a saturated market. It's heavily underinsured," Hahn said.

 

Roth also told The Insurance Insider that there had been significant improvements in terms and conditions in the Asia Pacific areas hit by 2011 losses.

 

However the firm is building up in-house expertise to take its own view on risk due to vendor models being less-than-adequate in capturing risk in the region, particularly flood risk but also South Sea earthquake risk, Roth said.

 

Peak Re will initially concentrate on property and casualty treaty reinsurance, with a particular focus on catastrophe risk. However it noted that within the portfolio there will be a balance of property, engineering, liability, motor and credit lines.

 

Peak Re buys retrocession cover but Roth noted that the firm has a very sizeable net retention.

 

"We will not just be a reinsurer in camouflage," he said.

 

In terms of regional focus, China, being the largest market and home territory is the natural target for Peak Re.

 

The IFC and World Bank want the reinsurer to concentrate on doing business with developing economies within the region including China, India and Indonesia.

 

However Hahn said the IFC understands that Peak Re needs to offer services to the more developed Asian Pacific markets in order to diversify and to "get out of the garage quickly". He pointed out that even Japan was shown to be underinsured following the Tohoku disaster in 2011.

 

The firm chose to be based in Hong Kong because of its "sound and strong" regulatory environment, its status as a leading financial centre in Asia Pacific and its central location within the region, explained Peak Re.

 

The founders also reiterated that the firm was not looking to open multiple offices as it looks to keep costs down and build a close culture within the business.

 

The reinsurer, like other Hong Kong-based firms has its holding company based in Bermuda in order to avoid the stamp duty of roughly 7.5 percent in Hong Kong and also to give investors the option to float Peak Re in future.

 

"This is not on the horizon but is rather precautionary," Roth said regarding the potential initial public offering (IPO).

 

"An IPO? It's possible but it's not our aim. We're very happy to be a privately-run company," said Hahn."

[giofranchi]

2012 Annual Report.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

2012AR.pdf

[TwoCitiesCapital]

http://online.wsj.com/article/SB10001424127887323734304578544992057983844.html

 

[giofranchi]

2013 Interim Results

 

 

giofranchi

Interim_Results_2013.pdf

[Guest hellsten]

Thanks. Only 1.4% growth in book value :(

 

Has anyone looked at Cheung Kong, which Third Avenue seem to like:

http://www.thirdavenuefunds.com/ta/HongKong_Feature.asp

 

Cheung Kong

 

Cheung Kong maintained a very strong financial position with HK$20 billion in cash and a net debt to capital ratio of only 7.6%. Cheung Kong Common traded at a 22% discount to reported net asset value at quarter end, compared to an average premium to book value of 1% over the last five years. Chairman Lee Ka-shing spent $14 million during the first four months of 2012 buying Cheung Kong Common in the open market and now owns 43.3% of the outstanding shares.

 

Other ideas:

 

 

Henderson Land

 

Henderson maintained a very strong financial position with a 16.6% net debt to capital ratio, interest coverage of 6 times and an average borrowing rate of 3.1%. As of April 30, Henderson Common was valued at a 44% discount to reported net asset value and nearly a 50% discount if the company’s stake in Hong Kong and China Gas were valued at market. Henderson Common’s current discount from book value is near historically wide levels (5 year average price to book of 0.85). In 2012, Chairman Lee Shau Kee has increased his stake in Henderson Common to more than 62%, purchasing $75 million of stock in the open market.

 

 

Wheelock

 

As of April 30, 2012, Wheelock Common traded at a 57% discount to reported NAV, a considerably larger discount than its 32% average discount over the last five years. This depressed valuation appears to more than compensate for the risk of the impact of a severe slowdown in China on Wharf’s China property business. Chairman Peter Woo seems to agree, having purchased $12 million in Wheelock stock so far in 2012, increasing his stake to 59.6%.

[WhoIsWarren]

A recent-ish report on Fosun from DealBook.  Nothing earth-shattering, though there's a reference at the end to a Goldman's report and its concerns for Fosun's debt levels, in particular that 40% of debt needs refinancing within the next year.  I haven't checked into this, I'm merely a Fosun spectator at this stage.

 

http://dealbook.nytimes.com/2014/01/10/striving-to-be-the-berkshire-hathaway-of-china/?_php=true&_type=blogs&_php=true&_type=blogs&_php=true&_type=blogs&_r=2

[fareastwarriors]

Chinese Tycoon Guo Copying Buffett Rises From Bread to Club Med

 

 

 

 

http://www.bloomberg.com/news/2014-07-06/chinese-tycoon-guo-copying-buffett-rises-from-bread-to-club-med.html

[fareastwarriors]

Billionaire Guo Buys Fashion Brands as He Chases Buffett

 

 

 

http://www.bloomberg.com/news/2014-09-08/billionaire-guo-buys-fashion-brands-as-he-chases-buffett.html#disqus_thread

[TwoCitiesCapital]

http://blogs.wsj.com/moneybeat/2015/04/21/chinas-fosun-makes-latest-play-for-chinas-affluent-with-cirque-du-soleil/

 

Fosun part of PE deal to buy Cirque du Soleil for 1.5B.

[hillfronter83]

http://www.bloomberg.com/news/articles/2015-12-10/chinese-billionaire-guo-guangchang-unreachable-caixin-reports

 

This shows you the political risk of investing in private Chinese companies.

[frank]

http://www.bloomberg.com/news/articles/2015-12-10/chinese-billionaire-guo-guangchang-unreachable-caixin-reports

 

This shows you the political risk of investing in private Chinese companies.

 

If this is real, it will be bad for Fosun as Guo Guangchang and a few of his top lieutenants were instrumental in many of their deals in the past years.  Regarding political risk, I think it is everywhere especially in the RE and financial services arena in China so I wouldn't be surprised if this happens again and again.  What did surprised me about this particular case is just that how strong-handed the current administration is in fighting corruption and getting payback on those who might have at one time or another greatly took advantage of the system.

[fareastwarriors]

Fosun Shares Fall Even as Chairman Said to Be Back at Work

 

 

http://www.bloomberg.com/news/articles/2015-12-14/fosun-chairman-guo-said-to-return-after-assisting-with-a-probe