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Daiwa and Morgan Stanley Reaffirm “Buy” Rating on Fosun

Both Firms Believe Fosun’s Cash Position is Sufficient to Repay its Debts Obligations 

(23 September 2022) Recently, a number of investment banks have expressed their continuous optimistic views on Fosun International Limited (HKEX stock code: 00656, "Fosun International"). Following Morgan Stanley's third recognition of Fosun International's solid financing capability and reiteration of its "Overweight" rating on Fosun International, Daiwa Capital Markets also issued a research report yesterday, reaffirming its "Buy" rating and target price of HK$10.8 on Fosun International. The firm pointed out that Fosun International’s fundamentals, funds and liquidity position are stable.

In view of the recent market concerns on Fosun’s repayment ability, Daiwa Capital Markets conducted an analysis and estimated that with Fosun’s cash in hand and the cash raised from its recent asset sales, Fosun’s cash position is sufficient to repay short-term maturing debts. The firm estimated that the actual debt attributable to Fosun International stands at approximately RMB100 billion at the holding level; as of 30 June, the company’s cash, bank balances and term deposits amounted to RMB117.65 billion. The firm estimated that Fosun International has RMB14 billion cash in hand at the holding level, after stripping off cash from subsidiaries. In addition, Fosun's short-term maturing debt is composed of bonds and bank loans. The firm believes that most of Fosun’s short-term bank loans are extendable upon maturity, coupled with the cash raised from the recent asset sales, as well as the close cooperation between Fosun and banks, including the recent strategic cooperation with ICBC and HSBC, will help Fosun International lay a solid cash foundation.

Morgan Stanley Reiterated its “Overweight” Rating on Fosun International for the Third Time

Morgan Stanley issued a research report on 16 September, the report said that most of Fosun’s debt at the consolidated level reported in its recent interim results announcement consists of lending by Fosun’s operating subsidiaries. The firm estimated that the debt at the holding company, including onshore debt, offshore debt and bank loans, is much lower. In terms of cash, with a tightening credit market, it is understandable that the company needs to take quick action to convert liquid assets into cash. It is estimated that the cash generated from its recent asset sales, together with its cash on hand is getting closer to being able to repay its near-term debt obligations. Morgan Stanley has therefore reiterated its “Overweight” rating on Fosun International with a target price of HK$11.4.

Morgan Stanley has already issued a research report on 7 September, pointing out that although Fosun International has recently announced a few small divestments in its core subsidiaries, which raised concerns about the company’s near-term stability, Morgan Stanley has confidence in Fosun International’s financing capability and believes the company can raise enough cash to handle its debts and withstand the recent market pressure, the company is deleveraging further to rebuild confidence. In fact, following Morgan Stanley’s release of research report on Fosun International’s interim results on 31 August, Morgan Stanley pointed out Fosun’s financial position is solid, with ample and increased cash position. As at the end of the reporting period, the company’s cash, bank balances and term deposits increased by approximately RMB21.0 billion to RMB117.65 billion, covering 45% of its total consolidated debt position; the debt to capital ratio was 56.8%. It believes that the Group’s balance sheet still largely stable.
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