Slowing economy haunts undertaker Fu Shou Yuan

China’s top funeral services provider fell into the red in the first half of this year, extending a year of revenue and profit declines in 2024

Key Takeaways:

• Fu Shou Yuan said it lost up to 260 million yuan in the first half of this year, sparking a 9% selloff of its stock
• With a land bank of 2.83 million square meters, nearly half in Shanghai, the death care operator still has plenty of space left to serve its customers

By Edith Terry

With China’s annual Hungry Ghost Festival less than a month away, it seems suitable the country’s top funeral services provider might offer up some bad news. That ill omen came last week in an alert from Fu Shou Yuan International Group Ltd. (1448.HK), which warned that it would report a loss of between 235 million yuan ($32.7 million) and 265 million yuan for the first half of this year, reversing a nearly 300 million yuan profit a year earlier.

It blamed the reversal on cautious consumer spending, increased tax costs and charges related to declining value of some of its assets. Spooked investors reacted by dumping the company’s shares, which fell by 9% the next trading day. The stock stabilized later in the week, as analysts predicted a rebound in the second half of the year. But it’s still down about 13% this year, showing it has yet to join the 2025 rally for many Chinese stocks.

Fu Shou Yuan is king of a fragmented Chinese funeral services market, with cemeteries and funeral facilities in major cities across 17 provinces, municipalities and autonomous regions. It operates in a market where the average spending per funeral totaled 37,000 yuan in 2021, or about 45% of annual household income. Spending is much higher in the affluent cities where Fu Shou is active, with the average burial plot costing 83,100 yuan in Beijing, 99,900 yuan in Shanghai and 64,100 yuan in Shenzhen last year.

The Shanghai-based company was founded in 1994 and listed in 2013, picking up big names like Carlyle in a highly oversubscribed IPO as investors clamored for a piece of the nation’s fast-growing death care market at a time when the economy was booming. But the mood is far more somber now as China’s economy slows after years of rapid growth.

Fu Shou Yuan’s latest profit warning extended a weak year for the company in 2024, when its revenue fell 21% year-on-year to about 2.1 billion yuan. Its profit fell by an even bigger 53% to 373 million yuan, though we should point out 2023 was a record year for both profit and revenue due to pent-up demand following the end of the pandemic.

While investors might be temporarily spooked by Fu Shou Yuan’s latest financials, there are still some reasons for optimism. China’s rapidly aging population means the number of people age 60 and above reached 310.3 million, or 22% of the total, last year. That’s pumping life into the funeral services market, which grew by an estimated 6.2% in 2024 to $4.3 billion, as deaths increased to a record 10.93 million. The market is expected to further grow to $6 billion by 2030, according to Grand View Research.

Fu Shou Yuan also has the advantage of scale in a funeral services market that numbered 13,879 operators by the end of 2021. As one of the industry’s leaders, the company’s market cap of nearly $1 billion is 21 times that of smaller listed rival Anxian Yuan China (0922.HK).

Despite its dip into the red this year, Fu Shou Yuan has a trailing price-to-earnings (P/E) ratio of 19 and price-to sales (P/S) ratio of 3.31, which both look much healthier than the P/E ratio of 7 and P/S ratio of 1.53 for Anxian Yuan. And of the five analysts covering Fu Shou Yuan polled by Yahoo Finance, four recommended it as a “buy” or “strong buy” and are forecasting a rebound for the company in the second half of the year.

Big land bank

Other factors are also working in Fu Shou Yuan’s favor, including scarcity of land for funeral plots. At the end of last year, the company had a saleable area for burial plots of 2.83 million square meters, slightly less than in 2023, but enough to satisfy its needs over the long run, it said. What’s more, nearly 50% of its revenue is generated from Shanghai, China’s financial center and home to some of the country’s highest land prices, making its assets in the city and its suburbs particularly valuable.

Fu Shou Yuan says it’s trying to reduce its footprint, though it’s unclear if it plans to put its cemetery properties on the market any time soon. High-rise vertical cemeteries and digital ancestral halls are growing in popularity as space-saving measures, with the Beijing municipality calling for a 30% reduction of land currently occupied by burial plots. Fu Shou Yuan has joined the call for more efficient land use, and became a sector leader with its launch of the first interactive digital ancestral hall in China last year. That facility combines features like a digital memorial hall, digital recreations of the deceased, and digital family heritage and testimonials in three-dimensional format.

The company also operates a “Metaverse Park” where people can conduct a range of traditional activities in the virtual realm, including memorial plaque setting, and bathing and hanging blessings ceremonies for the deceased.

Fu Shou Yuan’s declining revenue reflects consumer worries about spending money during an economic downturn that has now lasted more than two years. To cater to changing times, the company is repositioning its brand, calling itself a “life technology service provider,” as well as an “explorer and participant in the development and reform of the funeral industry.”

Fu Shou Yuan also likes to point out that the trend for cremating bodies, rather than giving them traditional burials, and storing the resulting ashes in columbariums is leading to a “massive demand for death care services” in the market. China’s cremation rate was already up to 58.8% in 2021, when nearly 6 million bodies were cremated. The rate is expected to keep growing with higher levels of urbanization, the company says. For a younger generation of more environmentally conscious customers, Fu Shou Yuan also likes to point out it has an “eco-friendly” cremator business that includes the latest technology.

In 2017, Fu Shou Yuan introduced a strategic pivot by placing greater emphasis on “pre-need” contracts. Such arrangements have proved popular, and it signed 20,229 such contracts in 2024, up 14.2% from 2023. The company is also exploring integrated pre-need contracts that provide hospice care, grief counseling and “emotional intervention,” according to its 2024 annual results.

Fu Shou Yuan has also used a generous dividend policy to try to support its stock, declaring a total annual dividends of HK$0.5474 in 2024, equal to about 16% of the current share price. In April, it also announced a mandate to repurchase up to 10% of its shares. But such measures don’t seem to be doing much to boost the company’s stock lately, and Fu Shou Yuan probably needs to breathe new life into its core business before it can win back investors.

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