Speculation very much alive in death service provider
Investors are betting on Fu Shou Yuan's earnings potential from cheap land bank in major cities
The US$215 million initial public offering by Fu Shou Yuan, a Shanghai-based death service provider, captured much attention from investors, and the shares traded well above their offer price on debut last week.
First, let's look at the company's fundamentals and growth momentum. One of the obvious reasons for all the hype around its chain of burial grounds is its inexpensive land bank in major coastal cities such as Shanghai, which can translate into big earnings.
Fu Shou Yuan's land acquisition costs range between 50 yuan (HK$63) and 562 yuan per square metre, depending on the locations of its cemeteries. But the average selling price of individual burial places, roughly about one sqmetre in size and up to 1.6 sqmetres for a twin site, could easily fetch 15,000 yuan.
According to its listing document, the burial service business, which accounts for 80 per cent of revenues, operated at a gross margin of 80 per cent in the first half of this year; while margins for its funeral service business were about 70 per cent. It now plans to use about half of its freshly raised capital to buy land for more cemeteries.
By comparison, at least three listed industry peers - Anxian Yuan China and two thinly traded stocks on the Growth Enterprise Market - performed poorly due to insufficient land banks for growth.