Guo Guangchang’s food knows the taste.
Text | Yang Xuran
Edit| Wang Fangyu
Production|tide-biz
Guo Guangchang is an evergreen tree in the Chinese business community and a master of creative concepts.
When he first started his own business, he and his entrepreneurial partners set up the values of “cultivating one’s body, aligning one’s family, establishing a career, and helping the world”;
As early as 2011, Guo Guangchang proposed “China’s power to graft global resources”. The grand narrative has driven many investment institutions and companies to seek investment projects overseas;
At the beginning of 2020, he proposed a so-called “Fosun Growth Formula”: altitude * speed * time * (1- deviation degree), which is sophisticated and complicated, and each part of it has a different statement.
In the business division of Fosun International (HK: 00656), Guo Guangchang is also playing his talent in organizational language. Fosun divides its business into three parts: health, happiness and wealth. He hopes to use highly condensed language to clarify and summarize Fosun’s investment direction.
It is not meaningful to speculate literally about investment. The most important thing is still to look at the specific investment direction and the final income. From the perspective of intuitive investment income, Fosun’s most outstanding investment in the past few years is:
Buy wine.
In the “happy” sector, alcohol has become Fosun’s core investment direction. Different from retail investors and ordinary institutional investors, Fosun always makes big moves:
In 2017, took over the 17.99% of the shares sold by Tsingtao Brewery’s Japanese shareholder Asahi Group, totalling HK$6.617 billion;
From August to October 2020, it first acquired 29.99998% of the shares held by the original controlling shareholder of Jinhuijiu with 1.8 billion yuan, and then continued to invest, rapidly increasing its holdings to 38%;
On December 31 of the same year, Fosun acquired a 70% stake in Sichuan Tuopai Shede Group Co., Ltd. through its subsidiary Yuyuan shares at a price of 4.53 billion yuan.
Fosun stated that it has “preliminarily completed the layout of the Baijiu industry track” after obtaining the controlling stake in the two liquor companies. The implication is that there is a high probability that the follow-up will continue to “drink”. Guo Guangchang will most likely invest more capital in this new favorite track.
I can’t be happy
5On the 24th, Fosun Tourism Culture (HK:01992) stock price surged 13.81%, and its stock price hit a two-year high.
One of the very important catalysts is the restart of summer tourism in Europe. Spain will allow tourists from 10 low-risk, non-EU member countries to enter from May 24, including China.
Before this, since the first quarter of 2020, under the influence of the epidemic, the share price of Fosun Tourism Culture, which has many tourism and resort assets, has fallen rapidly, with a cumulative decline of about 50%. Financial data show that this part of assets will record a loss of 2.568 billion yuan in 2020.
Originally, it was the highlight of “Chinese power grafting global resources”, but all kinds of tourism and vacation assets acquired by Fosun around the world have been affected by the epidemic to varying degrees.
Among them, Fosun and TPG, an American investment agency, have the most serious acquisition of Cirque du Soleil. In 2015, Fosun and TPG jointly invested US$1.5 billion to acquire 80% of the shares from Guy Laliberté, the founder of Cirque du Soleil. TPG holds 55% of Cirque du Soleil and Fosun Group holds shares. 25%.
The emergence of the epidemic has caused severe damage to Cirque du Soleil, which was already financially tight. In April last year, in response to a debt of 900 million yuan, Cirque du Soleil resigned 95% of its employees and declared bankruptcy on June 30.
There have also been other minor situations in the investment in “happiness”, especially the cross-border investment. Including British travel company Thomas Cook, Austrian high-end underwear brand Wolfford, German fast fashion brand TOM TAILOR, Greek jeweler Folli Follie, etc., all have more or less problems in business and financial issues.
Due to the combined effects of these factors, Fosun International’s 2020 earnings report is not good. Its net profit dropped from 14.801 billion yuan in 2019 to 8.018 billion yuan, a year-on-year drop of about 45.83%, and its net profit margin dropped from 14.11% to 8.12%.
The emergence of these problems once caused Fosun to encounter difficulties at the peak of the epidemic in 2020. But in the midst of anxiety, the stock price of a company in Guo Guangchang’s investment portfolio continued to rise, showing a gratifying performance.
Wine is a good thing
A-shares and H-shares fell sharply during the 2020 epidemic, and an atmosphere of panic emerged. Tsingtao Brewery’s (HK: 00168) share price fell at the same time, falling nearly 35% in the short-term. The stock price fell to 29.16 Hong Kong dollars, one step away from its cost price of 27 Hong Kong dollars.
Tsingtao Brewery stock price performance (from October 2017 to present)
But then the stock price of Tsingtao Brewery has rebounded rapidly, more than doubling in half a year. According to statistics, Fosun has begun to reduce its holdings since May 2020.
Calculated based on the closing price of Tsingtao Brewery Hong Kong stocks at HK$64.9 on September 4, compared with the initial share price, the face value of Tsingtao Brewery Hong Kong stocks held by Fosun has increased by 2.38 times. For Fosun, which has been plagued by the epidemic, this almost means sending charcoal in a timely manner.
In the following few months, the more Fosun sold, the more Tsingtao Brewery’s share price rose, reaching a maximum of 90.7 Hong Kong dollars per share in January 2021, more than three times the purchase price of 27 Hong Kong dollars. As of the beginning of May this year, Fosun has successfully cashed out 7.2 billion Hong Kong dollars (approximately 6 billion yuan) through the reduction of holdings.
This share reduction income is only a part of the overall investment profit, but it is already close to the total profit of Fosun Pharma (SH: 600196), the most profitable asset of Fosun in 2019 and 2020. If calculated on the basis of overall profit, the investment in Tsingtao Beer for three and a half years basically earned Fosun Pharma’s total profit from 2016 to 2020.
Such a level of profit is surprising. What’s more, in China’s capital market, beer is not the best asset in alcohol. In terms of profitability and capital market recognition, beer is much worse than liquor. Even so, Guo Guangchang’s investment is still a big success.
So, further participation in the investment of liquor, it will be a matter of course.
On May 27, 2020, just before Fosun started to reduce its shareholding in Tsingtao Brewery, Fosun Group’s Yuyuan Mall entered the listed company Jinhuijiu at 12.7 yuan per share and a total of 1.837 billion yuan.
After taking the position of the major shareholder of Jinhuijiu, Guo Guangchang continued to increase his holdings, which drove more investors and its stock price continued to rise. By November of that year, the stock price of Jinhuijiu had risen to a maximum of 55.93 yuan, and the stock price rose nearly 4.5 times, and it continued to maintain a strong share price afterwards.
Jinhuijiu’s share price performance (2020May years to present)
Subsequently, on December 31, 2020, ST was willing to auction 70% of its shares and was taken in by Yuyuan shares at a price of 4.53 billion yuan. ST was willing to drop the limit on the day, and the stock price was 85.55 yuan.
After a sharp shock, ST Shede (renamed Shede Liquor Industry after taking off the cap) rose sharply to close to 200 yuan, becoming the liquor company with the strongest share price performance in 2021, and its overall growth rate is also among the forefront of the entire market.
Share price performance of willing wine industry (December 2020 to present)
Guo Guangchang, who invested in liquor, made a lot of money. According to rough calculations, the investment in Jinhui Wine and Shede Wines has earned Fosun more than 15 billion yuan. If you add in the successful investment in Tsingtao Brewery shares, the cumulative profits of the three investments will be around 25-30 billion for Fosun.
Being against China Resources?
Many investors may be puzzled. Since they invest in liquor, why not choose first-tier brands such as Moutai, Wuliangye and Luzhou Laojiao?
The common characteristics of Jinhui Liquor and Shede Liquor are one of the few well-known private liquor companies in the market. Fosun chose to invest in a privately-owned baijiu company, and it was the position and control of its major shareholders. Obviously, this was a decision after thorough consideration.
Observing the actions of Fosun in the industry and investment in the previous years, we can find that Fosun has a certain degree of paranoia about control.
In March 2020, Fan Wei, the president of Tsingtao Brewery just two years after taking office, retired. Shi Kun, the co-president of Yuyuan, entered the board of Tsingtao Brewery and became a non-executive director. He was once regarded as a candidate for the president of Tsingtao Brewery, but until now , The position of president of Tsingtao Brewery is still vacant;
In addition, Fosun’s most failed investment in recent years—the investment in Cirque du Soleil in Canada. Although Fosun has spent a lot of effort to connect it with the Chinese market in various ways, it still ended in failure. . In this investment, Fosun holds 25% of the shares. Like Tsingtao Brewery, it is also a second shareholder.
From the perspective of decision makers, speculate that maybe both investments can take the lead, but the situation will be different-Tsingtao Brewery’s momentum may be even more rapid, and Cirque du Soleil will not fall.
Guo Guangchang has chosen a stronger control over the investment in baijiu, which also means that Fosun’s holding time for the two companies will be longer than Tsingtao Brewery’smany. On the basis of controlling shares, Fosun will inevitably carry out a series of reforms and upgrades to the two companies in order to obtain larger-scale investment returns.
But looking at Fosun’s investment landscape, the problem is that there are no assets that can produce synergies with it. Fosun’s many assets and brands are more closely related to Shede and Jinhui Liquor. It is a parallel relationship, it is difficult to produce business synergies.
In 2018, China Resources invested in Shanxi Fenjiu. At that time, Shanxi Fenjiu’s stock price was only less than 60 yuan, with a market value of tens of billions. After China Resources Group became the second shareholder of Fenjiu, it assisted Shanxi Fenjiu to rapidly expand the national market. Its products were quickly rolled out on the platforms of national large-scale chain institutions including China Resources Vanguard, China Resources High-end Boutique Supermarket Ole’, Huazhi Liquor, Yonghui Supermarket and so on.
After more than two years, Shanxi Fenjiu has become the most rapidly growing brand in the liquor market, and has become a strong competitor in the high-end brand market in the national market from a local brand. The very important foundation of this is the abundant resources of China Resources, especially in retail channels.
In the more than three years since China Resources became a shareholder on February 5, 2018, the share price of Shanxi Fenjiu has risen from 52 yuan per share to 464.97 yuan per share in February this year, a cumulative increase of more than 7.9 times. Investors have gained a lot.
In contrast, willing to have a strong brand foundation, Jinhui Liquor is also a powerful one, but Fosun Group and China Resources Group are still far behind in terms of financial strength and resource accumulation in the retail sector. . Whether the expected results can be achieved in the long-term and large-scale operation remains to be confirmed.
Write at the end
There are not many investment institutions listed in China, and Fosun is basically the most well-known one among them. From each of their annual reports, we can get a glimpse of Guo Guangchang’s investment preferences, logic, and the data ultimately reflected in the financial statements.
In investments in mining, steel, pharmaceuticals, overseas consumer brands and other fields, Fosun Group has gained a sufficient amount of asset scale, but the effect in terms of cash flow is not good enough. All these have caused Fosun International to face heavy financial cost pressure.
If you want to improve the asset quality of an asset-heavy organization and increase the level of cash flow, alcohol brands are almost the best choice. There are probably not many industries with such outstanding financial performance across the country.