Fosun Group

Fosun eyes more share buy-backs

PUBLISHED : Monday, 28 January, 2008, 12:00am
UPDATED : Monday, 28 January, 2008, 12:00am

Unhappy that the share price does not reflect the company's growth prospects, the controlling shareholder of Shanghai conglomerate Fosun International has indicated it may continue to buy the stock in the open market.

'The operating performance in all business segments was very good,' Liang Xinjun, Fosun vice-chairman, president and co-founder, said in an interview.

'Our Shanghai-listed units all posted exciting results last year. We have full confidence to meet our 2007 profit forecast stated in the listing prospectus, yet all this does not reflect on our share price.'

Shares of the mainland's largest diversified private company have dived below the stock's offer price of HK$9.23 since November, although its HK$13.27 billion initial public offering in July was one of the hottest in Hong Kong last year.

The stock soared to HK$15 at one point. It closed at HK$6.12 on Friday, 33.69 per cent below its offer price.

Fosun Holdings, the largest shareholding entity held by Mr Liang, chairman Guo Guangchang and executive directors Wang Qunbin and Fan Wei, began to buy the stock on the open market this month.

They bought 9.59 million shares between January 9 and 11 at HK$7.12 to HK$8.33 each and another two million at an average price of HK$7.421 each on January 18. The two purchases cost them about HK$89 million and raised their stakes to 77.82 per cent from 77.67 per cent.

'We [management] are sanguine about our long-term share price performance but we'll consider buying more shares in the short term as our funds permit,' Mr Liang said.

Fosun's three Shanghai-listed units delivered good results last year, he said. Profit at retail unit Shanghai Yuyuan Tourist Mart is expected to have jumped more than 300 per cent last year while those at Shanghai Fosun Pharmaceutical and Nanjing Iron & Steel may have more than doubled.

The market expects Fosun to post a profit of 2.78 billion yuan for last year and 3.57 billion yuan this year, a Thomson Financial poll shows. The street forecast is higher than Fosun's own projection of 2.15 billion yuan for last year.

Merrill Lynch, which issued a 'sell' call on Fosun on Christmas Eve, said the company might see more challenges ahead for its steel and property units, which are expected to contribute 85 per cent to total recurring net profit this year.

Earlier this month, Morgan Stanley, one of Fosun's listing sponsors, said investors were uncertain of Fosun's ability to continue to source good deals at attractive valuations..

'We believe the company has been constantly searching for sound investment ideas in the past six months but is constrained by rich valuations they need to pay for the assets. We expect this trend to continue, making Fosun's long list of potential acquisitions hard to materialise,' the bank said in a report.

Mr Liang denied that finding good deals was difficult and said Fosun had been successful in concluding deals at attractive valuations since the listing.

The company has invested 1.35 billion yuan in the resources sector including a 60 per cent stake in iron ore producer Hainan Mining United, 25 per cent in a coking coal mine in Shanxi, and 40 per cent in a Hainan forestry company. It has also bought 14.3 per cent of non-life insurer Yong An Insurance for 470 million yuan.

On average, the acquisition costs were six to eight times forecast earnings for the targets this year, in line with past acquisitions, Mr Liang said.

He said management had been in talks or expressed interest to buy other steelmakers including Tieben Iron & Steel, Hangzhou Iron & Steel, Qingdao Iron & Steel and Nanchang Iron Steel.