Before I continue, my personal thought is that if you are looking for quick capital gains through stock price appreciation of China funeral service-related stocks, you might have probably missed the boat.
The hype around these stocks was already evident in Nov 2022 after China authorities did a U-turn on their zero Covid policy, and subsequently, there was news of the unreported high number of Covid-19-related cases and deaths. Chinese pharmaceutical-related stocks, medical stocks, and insurance stocks have all recently seen a sudden uptick in stock prices.
China estimates 250mn people have caught Covid in 20 days (read here)
I am just writing here about my personal thought process and how it relates to my own personal stock portfolio. To be frank, some of these thoughts would not stand up on paper and make a lot of financial sense, but they made sense to me due to the current composition of my portfolio.
The Singapore Case
On 6 August 2021, it was announced that due to Singapore having successfully vaccinated 66% of its population, restrictions would be eased in two phases. Subsequently, Singapore has removed restrictions relating to the Variant of Concern (SARS-CoV-2) from 29 March 2022.
We can see from the chart below that from Aug 2021, there was an uptrend in the number of Covid cases, reaching a high sometime in March 2022, and since then there are waves of highs with each new variant.
The new COVID-19 hospital and ICU admissions have nevertheless been trending down.
The total number of recorded deaths so far is 1710, with 89.7% of the population fully vaccinated.
Among the deaths, we can see that the majority of the cases are from the elderly (60 to 80+ yrs of age).
The number of deaths daily has been trending down although there are waves of high due to the waves of new variants. Recently the death rate is 0.14 for 7 days on average. It is a long drawn but clear downward trend, but by no means over.
From the population pyramid of Singapore, we can see that there is a high percentage of the population in the above 45 years old age group.
Now what has it got to do with China, you might ask?
The case with China
Data from China is very opaque, but if we are to assume Singapore as a micro example of what is to come in China, it is not hard to guess what will happen. In fact, it might be argued that the battle with Covid in China will be long-drawn and at a much more massive scale.
Unlike Singapore, in China, only 69% of those aged 60 and above and just 40% of over 80-year-olds have had booster shots. In the US, over 70% of those over 65 have received a first booster, while 44% have already received a second.
In Singapore, more than 90% of those above 60 years old have minimum protection (eg. they have completed three mRNA or Novavax/Nuvaxovid doses, or four Sinovac CoronaVac doses). See below.
And there is the question about the effectiveness of the vaccines used in China. So far, eight COVID vaccines have been approved by its government. The two that are most commonly used are CoronaVac and Sinopharm. And they don’t stack up to the mRNA vaccines used in the U.S. (and Singapore).
From the population pyramid of China, we can see that China has a lower percentage of the population in the above 45 years old age group (but it is slowly morphing into Singapore’s version). Nevertheless, there is still a relatively high proportion of the population which are above 45 years old.
As crematoriums fill up, China shifts how it counts Covid deaths (read here)
For a tiny nation with a high vaccination rate among the elderly, with more effective vaccines, and with a well-drawn-up re-opening plan as compared to China, Singapore is till today still battling with Covid-19. Death rates have stabilized somewhat, but after many months after the reopening, the battle is still ongoing. The mammoth-scale battle in China has only just started.
With the rather opaque data we have been receiving from China, perhaps a better gauge would be via the earning reports from the Chinese pharmaceutical-related stocks, medical stocks, insurance stocks, and even funeral services-related stocks.
Hong Kong-listed funeral services-related stocks
There are 4 stocks listed on the Hong Kong exchange (see below), and among the four, two of these stocks issue dividends. eg. Fu Shou Yuan International Group Limited (1448.HK) and Anxian Yuan China Holdings Limited (0922.HK).
Fu Shou Yuan International Group Limited, together with its subsidiaries, primarily provides burial and funeral services in the People’s Republic of China. It operates through Burial Services, Funeral Services, and Other Services segments. The Burial Services segment sells burial plots; and offers cemetery maintenance services.
Anxian Yuan China Holdings Limited, an investment holding company, engages in the cemetery business in the People’s Republic of China. It provides funeral and burial services; sells tombs and niches; and operates the Bai Nian Ju building covering an area of approximately 30,000 square meters. The company was formerly known as China Boon Holdings Limited and changed its name to Anxian Yuan China Holdings Limited in July 2013.
The below article though dated helps to explain Anxian Yuan’s business and key revenue drivers.
Anxian Yuan Announces 2014/2015 Interim Results (read here)
From a purely fundamental stand view, Fu Shou Yuan (as compared to Anxian Yuan) is a much bigger company with stronger fundamentals.
Fu Shou Yuan has a higher ROE, ROA, lower Debt/Equity but lower current ratio.
From a historical financial standpoint, Fu Shou Yuan’s EPS and net income have been rising consistently. See below.
Anxian Yuan’s EPS has been flat in recent years and net income has been slightly up trending in recent years. Not as stellar compared to Fu Shou Yuan’s. See below.
In fact, among the four, the stock that has been receiving the most attention from analysts is Fu Shou Yuan.
Individual investors among Fu Shou Yuan International Group Limited’s (HKG:1448) largest shareholders, saw gain in holdings value after stock jumped 11% last week (read here)
China stocks: party and funeral shares make a dissonant rally (read here)
Nevertheless, Anxian Yuan’s balance sheet is respectable with a high current ratio of 3.72, with a low debt/equity of only 5.12%.
Anxian Yuan China Holdings (HKG:922) Could Easily Take On More Debt (read here)
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Dividend play
“In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin
There is a certain business moat when it comes to deathcare/funeral services-related stocks, and I have previously written a few posts on these stocks (see below). After all, death to every one of us, is certain. Their business is relatively immune to recessions.
I have also previously invested in Nirvana Asia Ltd which has been bought out and delisted, netting me a small profit.
Grim Reaper Stocks (read here)
Fu Shou Yuan International Group Limited (read here)
From a dividend growth perspective, Fu Shou Yuan is a clear winner. Compared to Anxian Yuan, it has a lower payout ratio. In 2021, the payout ratio is 28.82%. The management is committed to paying out no less than 25% of their net distributable profit as dividends to shareholders. See below.
Anxian Yuan does not consistently pay out dividends and only in recent years started a more regular dividend payout scheme. In 2021, the payout ratio is 47.74%. The company intends to pay dividends of not more than 75% of its distributable reserves available for distribution. See below.
Personally, from a fundamental point of view, I would reckon that Fu Shou Yuan is the clear dividend growth winner, given its consistently increasing dividend payout over multiple years.
As mentioned earlier, Fu Shou Yuan has been getting more analyst coverage and from the Simply Wall Street site, we can see that Fu Shou Yuan’s stocks appear to be 27% overvalued. See below.
While Anxian Yuan’s stock is 46% undervalued. We can clearly see which stock is getting the hype.
In addition, for my case, at the moment, I would like to add some higher dividend yield plays into my dividend portfolio and I have initiated a tiny position in Anxuan Yuan stocks.
Anxian Yuan is a riskier play and only time will tell if it can keep up with its dividend policy and even have an increasing dividend payout. The reopening of China and the increase in mortality rate should provide a short to medium-term tailwind.
Anxian Yuan’s current dividend yield is 9.89% and the projected dividend yield is 7.69% which is relatively high among my dividend counters (even among the HK-listed dividend counters in my portfolio).
On the other hand, Fu Shou Yuan’s current yield is only 1.6% and the projected dividend yield is 1.6% (rather low in today’s high-interest rate environment, even the latest Singapore Treasury Bill’s rate is higher). However, I must add that to just focus on the current Fu Shou Yuan’s dividend yield is rather short-sighted, after all, it has a strong history of consistently increasing its dividend payout.
The ‘messy’ battle with Covid-19 with the reopening of China is only beginning. Stock prices for these funeral services-related stocks remain volatile. However, if one is to believe that revenue and income for these companies will increase in the short to medium term given the scale and long drawn-out battle, it is worth having exposure to these stocks over time. There is really no hurry to invest, and perhaps a better strategy is to slowly DCA into these stocks.
As Cases Explode, China’s Low Covid Death Toll Convinces No One (read here)
Thank you for reading.
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