Fosun International (656 HK) Fosun

China Industrials 5 September 2018

Target price: HKD22.00 Share price (4 Sep): HKD14.18 | Up/downside: +55.1%

Initiation: global platform driven by China demand Leon Qi, CFA (852) 2532 4381  Unlike Berkshire/Ping An, Fosun “buys & operates” on an “open platform” [email protected]  Growth in global portfolio fuelled by China demand in various ecosystems Susie Liu (852) 2773 8745  Operating synergies & emerging retail ecosystems call for PER method [email protected]

Investment case: What is Fosun? While Fosun International (Fosun) Share price performance is sometimes perceived as a complex asset-heavy conglomerate or a (HKD) (%) Berkshire Hathaway-type insurance investment company, we see its 20 145 strategy differently and define it in the following 3 ways. 18 133 16 120 14 108

First, we note that Fosun “buys & operates” its portfolio companies on 12 95 an open platform, and its investments and operational initiatives Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 reciprocate each other. Second, many ecosystems among its portfolio Fosun Intl (LHS) Relative to HSI (RHS) companies are in the making, migrating its offline customers to online and integrating Fosun’s individual product offerings. Third, Fosun’s 12-month range 12.88-19.92 long-term overriding investment principle is to match its global Market cap (USDbn) 15.51 investment strategy with rising retail demand in China. We believe these 3m avg daily turnover (USDm) 15.67 are the 3 key angles from which to understand Fosun, and are the key Shares outstanding (m) 8,588 Major shareholder Fosun Holdings (71.7%) value propositions for investors.

Financial summary (CNY) Retail-oriented ecosystems. Unlike some in the market who believe Year to 31 Dec 18E 19E 20E Fosun will become China’s Berkshire Hathaway (BRK/B US, not rated) Revenue (m) 100,762 107,322 127,847 or the next Ping An (2318 HK, HKD76.8, Hold [3]), we see it as distinct Operating profit (m) 27,479 30,633 35,400 Net profit (m) 15,432 18,390 21,744 from both companies. Indeed, we view Fosun’s retail-focused Core EPS (fully-diluted) 1.788 2.131 2.519 ecosystems fostered across its portfolio companies as more EPS change (%) 17.1 19.2 18.2 comparable to Alibaba (BABA US, USD170.44, Buy [1]). Daiwa vs Cons. EPS (%) 1.1 8.0 15.1 PER (x) 6.9 5.8 4.9 Dividend yield (%) 2.9 3.5 4.1 Catalysts: Consistent and sustainable delivery of steady earnings and DPS 0.358 0.426 0.504 NAV growth; and the spinning-off of its major subsidiaries. PBR (x) 0.9 0.8 0.7 EV/EBITDA (x) 4.3 4.3 4.1 ROE (%) 14.3 14.6 14.7 Valuation: We initiate coverage of Fosun with a Buy (1) rating and 12- Source: FactSet, Daiwa forecasts month TP of HKD22. We use PER to value the stock and take the NAV- discount method as a reference. We do not merely view Fosun’s portfolio companies by their financial value in net assets. Instead, we see Fosun running its portfolio companies through a “buy & operate” model, gradually fostering ecosystems across its portfolio companies, and rigorously matching China’s rising consumer demand with its global investment portfolio.

We choose a wide spectrum of companies that are comparable to Fosun in different respects to serve as a benchmark for our PER valuation, and arrive at a 10x target 2018-19E average PER and TP of HKD22.

Risks: Execution risk associated with Fosun’s “open platform” model when engaging in M&A and generating operational synergies, given the management and operations of its portfolio companies are loosely tied together. We see anti-globalisation sentiment and policies as another risk.

See important disclosures, including any required research certifications, beginning on page 58

Fosun (656 HK): 5 September 2018

Table of contents

Executive summary - What is Fosun? ...... 7 Three value propositions that we believe define Fosun ...... 7 “Buy & operate” model on an open platform ...... 7 Nurturing ecosystems across portfolio companies ...... 10 Global investment strategy driven by China demand ...... 11 Head-to-head ecosystem comparison: Fosun vs. Alibaba ...... 13 Financial ecosystem ...... 15 Health ecosystem ...... 18 Consumption ecosystem ...... 21 Tourism ecosystem ...... 23 Entertainment ecosystem ...... 25 Positioning of Fosun’s portfolio companies ...... 28 Health ecosystem ...... 29 Happiness ecosystem ...... 31 Wealth ecosystem ...... 35 Financial forecasts ...... 40 Revenue growth by segment ...... 40 Net-profit growth ...... 41 Debt level and capital structure ...... 42 Adjusted net asset value (NAV) and BVPS growth ...... 43 Valuation and risks ...... 44 Price-to-earnings valuation ...... 44 Key risks ...... 46 Appendix ...... 47 Company background ...... 47 Valuation reference – an adjusted net asset value (NAV) perspective ...... 51 Shareholder structure ...... 52 Senior management profile ...... 53

Fosun (656 HK): 5 September 2018

Please also see:

China Insurance: China Insurance: China FinTech: Agent headcount trend to be the Addressing key market debates Initiation: Connecting the dots differentiator 30 August 2018 31 July 2018 17 July 2018 Leon Qi, CFA (852) 2532 4381 Leon Qi, CFA (852) 2532 4381 Leon Qi, CFA (852) 2532 4381 ([email protected]) ([email protected]) ([email protected]) Susie Liu (852) 2773 8745 Susie Liu (852) 2773 8745 Kevin Jiang (852) 2532 4383 ([email protected]) ([email protected]) ([email protected])

Ping An Healthcare and Technology China/Hong Kong Insurance: The AIA Group (1299 HK): (1833 HK): bigger picture — demystifying In the right place at the right time Differentiated competition with peers sustained growth 12 June 2018 2 January 2018 31 October 2017 Leon Qi, CFA (852) 2532 4381 Leon Qi, CFA (852) 2532 4381 Leon Qi, CFA (852) 2532 4381 ([email protected]) ([email protected]) ([email protected]) Kevin Jiang (852) 2532 4383 Susie Liu (852) 2773 8745 Susie Liu (852) 2773 8745 ([email protected]) ([email protected]) ([email protected])

Fosun (656 HK): 5 September 2018

How do we justify our view? Growth outlook Valuation Earnings revisions

Growth outlook Fosun: net profit and ROA We forecast a net profit CAGR of 18% of Fosun over 2017- (CNYbn) 2020E and a rising ROA from 2.6% in 2017 to 3.2% in 35 3.9% 5% 3.2% 2.8% 3.0% 4% 2020E. These are seen as the combined results of rising 30 2.3% 2.6% 3% profitability in general across Fosun’s portfolio companies 25 22 2% 18 through its “buy & operate” model, effective matching of 20 1% 15 globally recognised services with China’s rising consumer 13 0% 15 -1% demand, and a better financing structure on its balance 10 10 8 -2% sheet. -3% 5 -4% 0 -5% 2015 2016 2017 2018E 2019E 2020E Net profit ROA (RHS)

Source: Company, Daiwa forecasts

Valuation Fosun: 12-month rolling forward PER and share price Rolling PER (x) Price (HKD) We find Fosun is trading currently at 6x 2019E PER on our 20 25 forecast, lower than the stock’s past-5-year average 12- 20 month forward PER of 9x. From an NAV perspective, it is 15 currently trading at a 54% NAV discount. 15 10 10 5 5

0 -

Jul-14

Apr-09 Oct-12 Apr-16

Jun-17 Jun-10 Jan-11 Jan-18

Feb-08 Mar-12 Feb-15

Sep-08 Sep-15 Nov-09 Aug-11 Dec-13 Nov-16 Aug-18 May-13 Rolling PER Average PER +1SD -1SD Price (RHS) Source: Bloomberg, Daiwa

Earnings revisions Fosun: Bloomberg-consensus net profit forecasts The Bloomberg consensus 2018E and 2019E net profit (Rebased to 100) revisions for Fosun have risen by 25% and 38% in the past 150 12 months, respectively, as concerns on more stringent 140 regulatory intervention of China’s multinational 130 conglomerates have gradually ease since last July and the 120 market has regained confidence in Fosun’s business 110 model and profitability. 100

Jul-18

Apr-18 Oct-17

Jan-18 Jun-18

Mar-18

Feb-18

Aug-17 Sep-17 Nov-17 Dec-17 Aug-18 Sep-18 May-18 2018E net profit 2019E net profit

Source: Bloomberg, Daiwa

Fosun (656 HK): 5 September 2018

Financial summary Key assumptions Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E Health Ecosystem (% of revenue) - - 19.8 24.6 25.5 28.8 33.6 35.2 Happiness Ecosystem (% of revenue) - - 9.4 14.1 13.3 16.2 17.9 17.5 Insurance & Finance (% of revenue) - - 18.6 37.8 31.8 33.0 37.8 38.3 Investment (% of revenue) - - 31.2 3.9 4.8 4.5 4.4 3.9 Hive Property (% of revenue) - - 21.4 20.2 25.3 18.3 7.1 5.9 Net assets growth (%, YoY) - - n.a. 21.9 9.3 13.7 19.6 15.8 Net gearing ratio (%) - - 68.2 60.3 49.7 55.1 57.4 60.2 Average funding cost (%) - - 5.0 4.5 4.7 5.3 5.3 5.3

Profit and loss (CNYm) Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E Health Ecosystem - - 15,615 18,171 22,486 29,028 36,019 44,983 Happiness Ecosystem - - 7,442 10,445 11,694 16,362 19,178 22,337 Other Revenue - - 55,740 45,351 53,845 55,371 52,125 60,527 Total Revenue - - 78,797 73,967 88,025 100,762 107,322 127,847 Other income - - 29,698 25,821 27,287 32,068 38,261 42,733 COGS - - (61,135) (48,094) (55,875) (65,169) (70,700) (86,138) SG&A - - (16,447) (23,373) (26,641) (31,145) (34,584) (38,683) Other op.expenses - - (13,146) (9,922) (8,756) (9,037) (9,666) (10,358) Operating profit - - 17,766 18,399 24,041 27,479 30,633 35,400 Net-interest inc./(exp.) - - (4,724) (4,845) (5,584) (7,627) (8,344) (8,902) Assoc/forex/extraord./others - - 3,141 2,727 4,514 6,054 7,774 9,290 Pre-tax profit - - 16,183 16,281 22,971 25,906 30,063 35,788 Tax - - (5,229) (3,595) (6,175) (6,865) (7,967) (9,484) Min. int./pref. div./others - - (2,915) (2,418) (3,635) (3,608) (3,707) (4,560) Net profit (reported) - - 8,038 10,268 13,161 15,432 18,390 21,744 Net profit (adjusted) - - 8,038 10,268 13,161 15,432 18,390 21,744 EPS (reported)(CNY) - - 1.060 1.194 1.535 1.788 2.131 2.519 EPS (adjusted)(CNY) - - 1.060 1.194 1.535 1.788 2.131 2.519 EPS (adjusted fully-diluted)(CNY) - - 1.048 1.191 1.527 1.788 2.131 2.519 DPS (CNY) - - 0.162 0.188 0.293 0.358 0.426 0.504 EBIT - - 17,766 18,399 24,041 27,479 30,633 35,400 EBITDA - - 21,599 21,611 26,799 30,218 33,939 39,335

Cash flow (CNYm) Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E Profit before tax - - 16,183 16,281 22,971 25,906 30,063 35,788 Depreciation and amortisation - - 3,834 3,212 2,758 2,740 3,306 3,935 Tax paid - - (4,467) (3,777) (3,553) (8,813) (9,279) (11,216) Change in working capital - - (1,779) 11,178 27,000 14,785 9,870 16,270 Other operational CF items - - (17,189) (14,890) (18,723) (20,242) (23,993) (26,657) Cash flow from operations - - (3,420) 12,003 30,453 14,375 9,967 18,120 Capex - - (8,408) (6,168) (10,148) (12,595) (12,879) (15,342) Net (acquisitions)/disposals - - (22,367) (13,311) (8,847) (17,535) (23,976) (30,310) Other investing CF items - - 9,741 1,637 2,533 (707) (46) (1,011) Cash flow from investing - - (21,035) (17,842) (16,462) (30,837) (36,901) (46,663) Change in debt - - 26,759 11,344 21,342 20,425 18,230 18,184 Net share issues/(repurchases) - - 9,035 (233) (360) 0 0 0 Dividends paid - - (1,226) (1,616) (2,512) (3,086) (3,678) (4,349) Other financing CF items - - 1,913 (3,523) (2,598) (757) (323) 729 Cash flow from financing - - 36,482 5,972 15,871 16,581 14,230 14,565 Forex effect/others - - 0 0 0 0 0 0 Change in cash - - 12,027 133 29,862 120 (12,705) (13,978) Free cash flow - - (11,828) 5,836 20,305 1,780 (2,912) 2,778 Source: FactSet, Daiwa forecasts

Fosun (656 HK): 5 September 2018

Financial summary continued … Balance sheet (CNYm) Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E Cash & short-term investment - - 57,935 60,485 99,774 97,705 90,989 82,002 Inventory - - 10,898 7,737 8,344 9,178 10,096 11,106 Accounts receivable - - 46,419 41,958 45,131 51,111 56,589 67,579 Other current assets - - 6,363 78,811 28,516 37,175 48,504 62,345 Total current assets - - 121,616 188,991 181,765 195,169 206,179 223,032 Fixed assets - - 21,900 24,585 29,448 35,352 41,088 47,896 Goodwill & intangibles - - 19,556 15,887 26,084 31,642 36,838 42,320 Other non-current assets - - 244,346 257,317 296,492 325,815 363,735 417,249 Total assets - - 407,418 486,779 533,788 587,977 647,840 730,496 Short-term debt - - 5,144 7,275 7,789 7,961 9,346 10,602 Accounts payable - - 35,063 43,281 54,280 58,652 62,216 74,079 Other current liabilities - - 18,040 27,059 45,961 50,138 49,673 59,780 Total current liabilities - - 58,248 77,615 108,031 116,751 121,234 144,461 Long-term debt - - 115,110 126,277 150,456 163,826 173,442 182,502 Other non-current liabilities - - 134,507 160,014 138,889 151,656 168,600 189,796 Total liabilities - - 307,865 363,906 397,376 432,233 463,276 516,759 Share capital - - 36,046 36,157 36,485 36,661 36,661 36,661 Reserves/R.E./others - - 39,698 56,210 64,475 78,156 100,664 122,310 Shareholders' equity - - 75,744 92,367 100,961 114,817 137,324 158,971 Minority interests - - 23,809 30,507 35,452 40,928 47,239 54,766 Total equity & liabilities - - 407,418 486,779 533,788 587,977 647,840 730,496 EV - - 148,511 147,567 117,555 130,428 145,419 162,312 Net debt/(cash) - - 62,318 73,066 58,472 74,083 91,798 111,103 BVPS (CNY) - - 8.797 10.736 11.756 13.370 15.991 18.511

Key ratios (%) Year to 31 Dec 2013 2014 2015 2016 2017 2018E 2019E 2020E Sales (YoY) - - n.a. (6.1) 19.0 14.5 6.5 19.1 EBITDA (YoY) - - n.a. 0.1 24.0 12.8 12.3 15.9 Operating profit (YoY) - - n.a. 3.6 30.7 14.3 11.5 15.6 Net profit (YoY) - - n.a. 27.7 28.2 17.3 19.2 18.2 Core EPS (fully-diluted) (YoY) - - n.a. 13.6 28.2 17.1 19.2 18.2 Gross-profit margin - - 22.4 35.0 36.5 35.3 34.1 32.6 EBITDA margin - - 27.4 29.2 30.4 30.0 31.6 30.8 Operating-profit margin - - 22.5 24.9 27.3 27.3 28.5 27.7 Net profit margin - - 10.2 13.9 15.0 15.3 17.1 17.0 ROAE - - 21.2 12.2 13.6 14.3 14.6 14.7 ROAA - - 3.9 2.3 2.6 2.8 3.0 3.2 ROCE - - 16.2 7.7 8.7 8.8 8.8 9.1 ROIC - - 7.4 8.0 9.0 9.5 8.9 8.7 Net debt to equity - - 68.2 60.3 49.7 55.1 57.4 60.2 Effective tax rate - - 32.3 22.1 26.9 26.5 26.5 26.5 Accounts receivable (days) - - 107.5 218.1 180.6 174.3 183.1 177.2 Current ratio (x) - - 2.1 2.4 1.7 1.7 1.7 1.5 Net interest cover (x) - - 3.8 3.8 4.3 3.6 3.7 4.0 Net dividend payout - - 15.3 15.7 19.1 20.0 20.0 20.0 Free cash flow yield - - n.a. 5.5 19.2 1.7 n.a. 2.6 Source: FactSet, Daiwa forecasts

Company profile

Fosun International Limited is one of China's largest private conglomerate and investment companies. Founded in 1992, the company has established a global investment portfolio with over 300 companies principally focusing on health (including health care), happiness (including retail and tourism) and wealth (including insurance and finance, investment, and hive property) ecosystems.

Fosun (656 HK): 5 September 2018

Executive summary: what is Fosun? 3 value propositions that we believe define Fosun Perceived as a complex conglomerate, Fosun is often described in various ways by investors.

Is it a Berkshire-type insurance-driven investment company? Or a unicorn investor financed by some cash-cow business, similar to Ping An? Or is it just a passive venture- capital investor? Fosun’s long operating history and multiple strategy shifts during the past 2 decades further complicate the story for outsiders. Is it a pharmaceutical company? Or a property company? Or an asset-heavy mining company?

Runs a “buy & operate” We define Fosun in 3 ways. First, it is an open platform for all of its portfolio companies model among a portfolio which it “buys & operates”. Second, the company fosters a few ecosystems across its of companies, riding on portfolio companies and nurtures new demand. Third, Fosun matches its global investment China’s rising retail strategy with the rising retail demand in China. We believe these are the 3 key angles from demand, and harnessing which to understand what Fosun is, and are also the key value propositions for investors. its global platform to create new ecosystems Fosun: 3 value propositions

Source: Daiwa

“Buy & operate” model on an open platform The model that distinguishes Fosun from Berkshire On the face of it, both Berkshire and Fosun use insurance money to invest globally across diverse industries. Hence, it is understandable that some media often refer to Fosun as “China’s Berkshire”. Notwithstanding Warren Buffet’s successful investment history, we see it a bit differently. We argue that utilising low-cost insurance funding is probably the only similarity between Fosun and Berkshire, and that there are instead a few key differences in business models between the 2, with Fosun’s “buy & operate” model being the most prominent.

Fosun “buys & operates” its portfolio companies, whereas Berkshire “buys & holds” its investments. Unlike Berkshire, which usually acts as a passive investor, Fosun’s investment decisions are not purely made from a financial perspective at the outset.

Fosun (656 HK): 5 September 2018

“Buy”. Fosun has clear strategic objectives for these investments to generate synergies when initial investment decisions are made. In short, its focus is on “matching China’s rising consumer demand with its global platform” (we elaborate on this in later sections of this report).

“Operate”. Once Fosun has made the investment, it usually gets into the management and operation of these portfolio companies to a certain extent, although typically not taking full control of them. We see its objectives as: 1) matching the existing franchise or resources of the portfolio companies with its own consumer client base, 2) generating synergies and ultimately ecosystems across its existing portfolio companies, and 3) utilising its management knowhow and experience across these companies and its long operating history.

To Fosun, investments are based on its understanding of operations. In return, operational expertise adds value to its investment decision-making. One of the major objectives in making investments is to cover the limitations in its operation, while most of the value added in its investments comes from its operational involvement after the investments.

Over years, Fosun’s involvement by its using cross-border managerial experience has been proven to add value to the operations of its portfolio companies, eg, in the cases of Club Med, Fidelidade and We Doctor.

“Investment is only the first step in value creation, the real value is created from what we do after we invest… Vertical depth of industrial development and the continuous enhancement of operational capability are now more important than investment… We expect that this (operating income from core business) will provide one of the most important sources of income for Fosun in the future.”

– Guo Guangchang, Chairman of Fosun International

“Open platform” differentiates Fosun from Ping An We understand that some in the market compare Fosun with Ping An because both companies invest in a portfolio of subsidiaries. We argue that while there are many differences between the 2 companies, the most prominent is that Fosun runs an “open platform” while Ping An exercises much tighter control over its subsidiaries.

Fosun’s investment In terms of share ownership, we note that Fosun usually takes a gradual approach while approach is distinct from investing in its portfolio companies and does not necessarily seek control of them. Ping An that of Ping An, the key usually either acquires a controlling stake in the company in which it invests or internally difference being that develops its subsidiaries. In both ways Ping An owns a majority stake in these companies. Fosun is an open For Fosun, even for some of its sizeable subsidiaries that are currently majority-owned, platform Fosun in fact started with a minority stake and gradually increased its ownership over time.

In terms of the management team of portfolio companies, for Ping An when it comes to acquiring a controlling stake, Ping An, or through its subsidiaries, sometimes makes significant changes in the management team of the company being invested in to ensure that it is tightly managed by the group (for example, in its acquisition of Shanghai Jahwa). Fosun, by contrast, gives much greater freedom and accountability to the managements of its portfolio companies.

While it is hard to simply say which way is better, we see 5 major benefits with an “open platform” method, taking a minority stake and working initially with existing management to expand the footprint.

 Quickly develop a comprehensive “buy & operate” ecosystem. Sometimes the target company may not be exactly the core business that Fosun targets to expand into,

Fosun (656 HK): 5 September 2018

but offers business synergies through cross-selling or creating a more comprehensive ecosystem. Hence, for such companies, taking a minority stake and keeping existing management is easier than acquiring the whole company according to Fosun’s group- level strategy in terms of building ecosystems.

 Minimise the risk of business integration. By initially taking a minority stake, Fosun has the opportunity to observe the ongoing progress of integration and “phase-in” its stake only if both the strategic objectives are reached and financial numbers are satisfactory.

 Aligning the interests of management teams and retaining talent. The complexity of Fosun’s businesses makes it difficult for its management to be experts in so many areas and across such a diverse geographic footprint. Hence, by largely keeping the existing management teams, these portfolio companies get the best of both local management and Fosun’s group-level expertise. And keeping the existing management teams also helps to maintain stability and the morale of key capable talent within these companies.

 Efficient utilisation of capital. By investing in minority stakes in a large number of companies, it means more efficient utilisation of the group’s capital and diversifying of risks that are either country-specific or industry-specific

 Avoiding the “reverse selection” problem. When it comes to M&A, especially in emerging markets, we note the problem of “reverse selection”. Namely, when a company is willing to sell its entire business, more often than not, there are potential hidden risks that are difficult for outsiders to assess. Acquiring a minority stake and maintaining the minority management influence give Fosun a viable opportunity to look closely on that front.

Fosun: advantages of the “open platform” method

Develop “Buy & Operate” ecosystem quickly Minimise Avoid business “reverse integration selection” Open risks Platform

Align Efficient interests of utilisation of management capital team and retain talents

Source: Daiwa

Fosun (656 HK): 5 September 2018

Fosun: Investment decision-making process

Source: Company Note 1. From Aug 2017 to Aug 2018; 2. Total deals in 2017

Nurturing ecosystems across portfolio companies The “open platform model” is in fact more comparable with Alibaba than Ping An, in our view. Fosun’s “open platform” model enables it to attract a large number of diverse partners. By bringing all of these partners back to China and putting them on Fosun’s shelf in front of Chinese customers, Fosun is creating new ecosystems.

In this regard, we see Fosun as more comparable to Alibaba than Berkshire or Ping An in terms of its strategic business model, specifically, in terms of ways of engaging in M&A, operating the portfolio companies, capturing China’s consumer demand, and fostering ecosystems.

While Alibaba is trying to monetise its online user traffic to offline, Fosun is migrating its offline traffic to online. We see its “You Le” mobile platform as its first initiative in formulating such an online gateway, and look forward to more online CRM initiatives to more comprehensively integrate its offline retail-oriented offerings. We see co-branding efforts and its forthcoming integrated membership programmes as keys to connecting the dots among Fosun’s individual portfolio companies.

Fosun vs. Alibaba: overview of ecosystems

FOSUN ALIBABA

1 FINANCIAL Focused on global insurance and wealth management Focused on payment with complete financial service ECOSYSTEM e.g. Fidelidade, Peak Re, Fosun Hani Securities offerings e.g. Alipay, Yu’e Bao, Zhima Credit, Huabei

A full value chain developed e.g. Fosun Pharma, We 2 HEALTH Platform centered with online healthcare services and ECOSYSTEM Doctor, Fosun United Health Insurance products e.g. AliHealth, T-Mall Pharmacy

CONSUMPTION 3 Strong offline retail brands and distribution shifting to “New Retail” strategy to integrate from Online-to- ECOSYSTEM online e.g. Youle, Tsingtao, Yuyuan, Juewei Food Offline e.g. Taobao, T-Mall, Hema, Suning

Offline-to-Online model with cross-border operations 4 TOURISM Online travel platform provider ECOSYSTEM e.g. Club Med, Atlantis Sanya, Thomas Cook, Albion e.g. Fliggy, qyer.com

ENTERTAINMENT 5 Global portfolio to match Chinese families demand Vertically integrated, covering literature and digital ECOSYSTEM e.g. BONA Film, Studio 8, Cirque du Soleil media e.g. Alibaba Pictures, Youku Tudou

Source: Daiwa

Fosun (656 HK): 5 September 2018

Fosun vs. Alibaba: positioning of major portfolio companies

Online Fliggy T-Mall Taobao Yu’e Bao Babytree AliHealth Youle

Youku Tudou We Doctor Zhong An Online P&C

Alipay

Didi

Suning Club Med

Atlantis Sanya

Sinopharm Tsingtao

Juewei Food Lanvin Fosun’s subsidiary

Hema Fosun’s affiliated company Fosun Pharma Fidelidade Alibaba’s subsidiary Peak Re Alibaba’s affiliated company Cirque du Yuyuan Soleil Offline

Pure Matching China’s demand with domestic global resources

Source: Daiwa

Global investment strategy driven by China demand Fosun’s investment Matching a global platform with China demand. Fosun had over 100m individual principle tries to match customers as of end-2017, riding on China’s structurally rising consumer demand. This the complementary wide customer reach is based on Fosun’s long-existing offline operations in all its retail- China consumer demand oriented ecosystems. with global supply This is complementary to the lack of demand faced by lots of health, consumer, and financial companies in developed economies due to demographic trends. Hence, bringing the products and services of its portfolio companies back to China is a key strategic rationale for Fosun’s investments. The matching of these 2 forms the foundation for Fosun’s strategic investments, in our view.

Fosun: number of customers across ecosystems (2017) HAPPINESS ECOSYSTEM

HEALTH ECOSYSTEM 40m 1.3m WEALTH ECOSYSTEM Yuyuan annual visitors Club Med annual visitors 7.5m 38m 2.9m 5.4m Fosun Pharma and Luz Registered online Fidelidade customers BCP active Saude annual in-/out- users (maternal) patients customers

>100m customers >35m family users

Source: Company, Daiwa Note: According to ESRI, the average number of members per family is 3; excluding users from portfolio companies, ie, WeDoctor, MyBank, etc.

Fosun (656 HK): 5 September 2018

Fosun: matching China’s demand with global resources

Global resources

China’s demand

Source: Company, Daiwa Note: only for illustration purposes, list of portfolio companies not exhaustive

Fosun (656 HK): 5 September 2018

Head-to-head ecosystem comparison: Fosun vs. Alibaba

Despite being perceived as 2 completely different companies operating in distinctive areas, after a detailed review and discussion with management and talent from both companies, we see many similarities between their business models and strategic rationale (discussed in the previous section).

Both are retail-focused In addition, both have already established a few consumer-focused ecosystems by utilising and consumer-centric their own historical strengths – healthcare for Fosun and e-commerce for Alibaba. ecosystems; Alibaba is moving from online to We did a head-to-head comparison of 5 major ecosystems that both Fosun and Alibaba offline, Fosun is moving are building, namely financial, health, consumption, tourism, and entertainment. We drew 3 from offline to online conclusions from this head-to-head comparison.

 Both companies have already formulated at least the basic settings in all 5 of these ecosystems, and are now trying hard to make them more comprehensive through M&A.

 While Alibaba is a much larger company in size than Fosun, and hence in all these ecosystems, in terms of comprehensiveness and customer stickiness, Alibaba has a clear edge only in the consumption and entertainment ecosystems, in our view, while Fosun is stronger only in the health and tourism ecosystems. There are notable differences in financial ecosystem features between the 2, with Alibaba having a dominant position in the domestic payment market, while Fosun is strong in global wealth management and insurance capabilities.

 In most of these 5 ecosystems, while Alibaba is focused on online-to-offline, Fosun is actively going the other way, ie, offline-to-online.

Head-to-head comparison of Fosun’s and Alibaba’s ecosystems Fosun Alibaba Customer reach >100m customers, >35m family users 552m annual active consumers, 617m mobile MAUs Architecture Open platform Open platform Ecosystems Financial, Health, Consumption, Tourism and Entertainment Key products and Payment, E-Commerce, Retail Commerce, Cloud Computing, Insurance, Property, Healthcare, Tourism, Fashion, Mother & Baby Products services Digital Media & Entertainment Fidelidade, Peak Re, Forte, Yuyuan, Fosun Pharma, Club Med, Atlantis Alipay, Alibaba, Taobao, T-Mall, Cainiao, Alibaba Cloud, Fliggy, Key member brands Sanya, Lanvin, Tom Tailor, Babytree Youku Tudou, Alibaba Music Online platform(s) “You Le”, We Doctor (minority stake) Alipay, Alibaba, Taobao, T-Mall, Youku Tudou, Alibaba Music Key customer Online channels (Taobao, T-Mall, Alipay, Youku Tudou, Fliggy, Offline channels (Yuyuan, Club Med, Fosun Pharma, etc.) acquisition channel etc.)

Source: Companies, Daiwa Note: as of end-2017 for Fosun and FY18 for Alibaba

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Fosun vs. Alibaba: positioning of major portfolio companies

Online Fliggy T-Mall Taobao Yu’e Bao Babytree AliHealth Youle

Youku Tudou We Doctor Zhong An Online P&C

Alipay

Didi

Suning Club Med

Atlantis Sanya

Sinopharm Tsingtao

Juewei Food Lanvin Fosun’s subsidiary

Hema Fosun’s affiliated company Fosun Pharma Fidelidade Alibaba’s subsidiary Peak Re Alibaba’s affiliated company Cirque du Yuyuan Soleil Offline

Pure Matching China’s demand with domestic global resources

Source: Companies, Daiwa

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Financial ecosystem We see comparability between Fosun’s (though much smaller) and Alibaba’s financial ecosystems as they both adopt a “core-satellite” model, with one dominant segment complemented by comprehensive financial service offerings in other segments. However, differences lie with their core segments, namely, global insurance and wealth management for Fosun, and the domestic payment business for Alibaba.

In the meantime, Fosun and Alibaba have forayed into other traditional and innovative financial businesses, such as brokerages, asset management, online banking and micro credit. With the active expansion of their business lines and increasing reach in the retail financial space, both groups have obtained almost full sets of financial licences in China. Fosun and Alibaba have also made various overseas investments, which have become key components in their ecosystems and group strategies.

Fosun vs. Alibaba: financial ecosystem comparison (China/Hong Kong) Bank Securities Life Insurance P&C Insurance Insurance broker Futures Fosun Hani Pramerica Fosun Life Datebao Insurance Broker; Fanhua; Zhongzhou Securities (HK); Insurance; Fosun Yong An P&C Zhongheng Insurance Agency; Futures* (wholly Fosun MYbank Tebon United Health Insurance Xingheng Insurance Agency; owned by Tebon Securities* Insurance Weiease Insurance Agency Securities) Ant Trust Mutual Life Zhong An Online; MYbank YF Securities* Baojin Insurance Broker n.a. Financial Insurance Cathay Insurance Fund Third-party Credit Financial Mutual Fund Financial Leasing Micro Loan Distribution Payment Investigation Exchange Guangxin Fosun Kangjian Fortune Credit Fosun Tebon Fund* Tebon Fund* FosunPay Microcredit; Fosun n.a. Leasing Services Yuntong Microcredit Ant Fortune; Wang Jin She; Ant Tianhong Fund Yu'e Bao; n.a. Alipay MYbank; Aliloan Zhima Credit Tianjin Financial Financial Fund123 Assets Exchange

Source: Companies, local media, Daiwa Note: (1) only affiliated companies based in mainland China and Hong Kong are included, including minority stakes; (2) Tebon Securities (and Tebon Fund, 49% owned by Tebon Securities) are jointly invested by Guo Guangchang (chairman of Fosun), Liang Xinjun (ex-CEO of Fosun) and Wang Qunbin (current CEO of Fosun) with 94.25% equity stake, it is a Fosun brand company but is not directly invested by Fosun; (3) YF Securities is invested personally by Ma Yun (executive chairman of Alibaba) with 29.85% stake

Fosun vs. Alibaba: financial ecosystem comparison (overseas) Asia ex. China/HK Europe North America Others Fidelidade (Portugal); Millenium BCP (Portugal); H&A (Germany); Fosun IDERA Capital (Japan) AmeriTrust (US) Rio Bravo (Brazil) Paris Realty Fund SA (France): Fosun Eurasia Capital (Russia) Paytm (India); Ascend Money (Thailand); Kakao Pay (Korea); K-Bank (Korea); Mynt Ant (Philippines); Emtek Wirecard AG (Germany) n.a. Paybang (Australia) Financial (Indonesia); TNG (Malaysia); Lazada (Singapore); bKash (Bangladesh); TMB (Pakistan)

Source: Companies, local media, Daiwa Note: as of end-2017; including minority stakes

Fosun: insurance-and-wealth-centric financial institutions Fosun’s financial Since its investment in Yong An P&C Insurance in 2007, Fosun has gradually built a ecosystem: insurance- comprehensive financial ecosystem centred around a complete global insurance and and wealth-centric wealth management value chain. Compared with Alibaba, Fosun’s domestic financial ecosystem is mostly in the early stage of development. However, we note Fosun has gradually allocated more resources and effort in ramping up the comprehensiveness of its financial services in China and Hong Kong since 2013, to meet the varying and growing financial and wealth management needs of its core Chinese family customers.

Insurance and wealth management. Fosun’s first domestic investment in financial services was in Yong An P&C insurance in 2007, and it has since gradually expanded its insurance business portfolio to Pramerica Fosun Life in 2012 and Fosun United Health Insurance in 2017. It has also made investments in multiple insurance brokers to further add value to its insurance businesses, including Datebao Insurance Broker, Fanhua, Zhongheng Insurance Agency and Xingheng Insurance Agency.

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Comprehensive Besides the domestic insurance value chain, Fosun has also actively invested in overseas domestic and overseas insurance and wealth management companies, with key investments including Peak Re financial business (2012), Fidelidade (2014) and AmeriTrust (2015). It has also invested in foreign banks landscape (Millenium BCP and H&A in 2016) to further expand its footprint in the European wealth management market. In 2014, Fosun also acquired a wholly owned investment bank in Hong Kong, namely Fosun Hani Securities, to further strengthen its overseas investment and wealth management capabilities.

As the core of its financial ecosystem, Fosun’s insurance businesses, whether domestic or overseas, generate significant and consistent net profit and cash flow for the group, while providing a relatively cheap funding source and investment platform for Fosun to invest in quality assets, domestically or overseas. Fosun is then able to integrate these investments with its own ecosystems by leveraging on its other domestic and overseas resources, but more importantly, through its unique platform and position in China, to create greater value from its financial ecosystem (see details in the Case Study on Fidelidade in the next section of this report).

Other financial services. Since 2013, Fosun has also started to build a more comprehensive retail-and-SME-focused financial service platform under the Fosun Financial Services umbrella. Fosun has been actively expanding businesses in credit, financial leasing, payment, internet banking, and FinTech, etc. Apart from various equity/ PE/VC investment bodies under Fosun, it also co-founded Mybank (25% equity stake), an Internet commercial bank that provides financial services to micro and individual businesses and individual consumers.

FosunPay is Fosun’s unified platform through a mobile app. As of July 2018, the FosunPay platform incorporated insurance product sales (through Datebao Insurance Broker), and wealth management services, including securities brokerage (through Tebon Securities), mutual fund sales (through Tebon Fund), and wealth management product sales services on its mobile app, and we expect the company to continue integrating more financial products and services under the Fosun brand.

Fosun: financial system through FosunPay App FOSUNPAY APP WEALTH MANAGEMENT INSURANCE SALES SECURITIES DEALING

Securities dealing & wealth management

Wealth management products

Insurance sales

Source: Company, Daiwa

Alibaba: payment-centric financial ecosystem Unlike Fosun, Alibaba’s financial ecosystem is built around third-party payment, which is the core financial service it provides to its main customer group in China (ie, users of its e- commerce and payment platform). On the other hand, it operates in other segments of the

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financial services sector under the Ant Financial brand, with some businesses (such as micro loans, credit services and fund distribution) fully integrated with its payment services on the Alipay platform.

Ant Financial: solutions offered across the financial service spectrum

Source: Company, Daiwa Note: (1) During the 12 months ended 31 March 2017, or by the end of 31 March 2017; (2) During the 12 months ended 31 March 2017; Source: Form 10-Q; (3) As of fiscal year ended 31 December 2016

Ant Financial: financial business subsidiaries Ant Financial: revenue mix (2017) Type of Life P&C Insurance Financial Bank Mutual Fund business Insurance Insurance broker Technology services Zhong An 11% Subsidiary Baojin services (mainly Trust Mutual Online; Tianhong of Ant MYbank Insurance to financial Life Insurance Cathay Fund Financial Broker institutions) Insurance 34% Type of Fund Third-party Credit Financial Micro Loan business Distribution Payment Investigation Exchange Wang Jin Subsidiary Ant Fortune; She; Tianjin MYbank; of Ant Yu'e Bao Alipay Zhima Credit Financial Aliloan Financial Fund 123 Assets Exchange Payment 55%

Source: Company, local media, PBOC, CBIRC, CSRC, Daiwa Source: Company, Reuters, Caijing Note: including minority stakes

Payment businesses. For the year ended 31 March 2018, Ant Financial served around 870m annual active users, with more than 200 domestic financial institution partners, according to Alibaba. Its core payment services, through Alipay, enjoyed 520m annual active users during the same period. At end-2017, Alipay was the largest mobile payment provider in China with a 54.3% market share, according to Analysys, a major data analytics service provider in China.

Some 55% of revenue for With regards to its foreign investments in the financial ecosystem, Ant Financial currently Ant Financial comes works with over 250 overseas financial institutions and payment solutions providers to from payments enable cross-border payments for Chinese travelling overseas. Notably, Ant Financials’ foreign investments in financial services are solely centred on third-party payment businesses. During 2015-18, Ant Financial made a series of overseas investments in local third-party payment providers across Asia, covering almost all major and most populated Asian economies except for Japan (although Alipay is available on Japan’s largest e- commerce platform, Rakuten). The management of Ant Financial sees its overseas strategy as “copying more of Ant Financial itself” in different sizes in other Asian markets.

Other financial businesses. Similar to Fosun, Alibaba’s Ant Financial (see also here) has obtained almost a full list of financial licences in China, covering insurance, banking, mutual funds, credit investigation, micro loan and financial exchange businesses. However, these financial services under Ant Financial’s platform are mostly provided to complement and synergise with its core payment businesses. For example, Huabei (花呗) under Aliloan provides a convenient online credit-card-alike service to users of Taobao and T-mall, while consumers’ credit behaviours are recorded by Zhima Credit (芝麻信用) and can be utilised to redeem credit in products and services from other segments within Alibaba’s ecosystems. Also, Ant Financials’ asset management arm manages the world’s largest money market fund (MMF), Yu’e Bao (余额宝), with AUM of CNY1.68tn as at end-1Q18 and exclusive to Alipay users. (See pages 126-127 of our China FinTech report for more details on Ant Financial.)

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Health ecosystem In the healthcare space, Fosun has made extensive investments to build a complete online/offline value chain, extending from upstream R&D to direct reach to customers in the downstream. By comparison, Alibaba’s strategy in the health ecosystem remains online-to-offline, as an online platform provider for health-related e-commerce and online/ offline medical services.

Fosun: a complete health ecosystem along the value chain Fosun’s health As one of the earliest ecosystems to develop within the group, Fosun’s health ecosystem, ecosystem: full value- mainly under Fosun Pharma (2196 HK, not rated), already covers almost all aspects of chain capability healthcare products and services, from R&D and pharmaceutical manufacturing, to medicine wholesale and retail distribution through hospitals, retail drug stores, and online medical platforms. Fosun has also invested in other healthcare fields including medical diagnosis, medical devices, senior care, health insurance and healthy lifestyle products.

Fosun: health ecosystem value chain Diagnosis & Medical R&D Manufacturing Distribution & Retail Health Services & Others Devices

Source: Fosun Pharma, Company, Daiwa Note: (1) including subsidiaries, joint ventures, associates, and other member companies; the list is not exhaustive; (2) Fosun United Health belongs to “Wealth Ecosystem” for accounting treatment; (3) as of end-2017

Upstream: mainly through Fosun Pharma. Established in 1994, Fosun Pharma is one of Fosun’s oldest subsidiaries and a flagship within its business portfolio. Currently most upstream businesses in the healthcare ecosystem operate under Fosun Pharma, which has been ramping up R&D and pharmaceutical manufacturing investments in recent years and making frequent acquisitions targeting innovative pharmaceutical and medical technologies. Fosun Pharma’s major acquisitions and investments in this area in 2017 alone included Kite Pharma (a CAR-T treatment research company), Impax Labs (US pharmaceutical company), Gland Pharma (Indian pharmaceutical manufacturer), and Henlix Biotech (复宏汉霖, Taiwanese biotech company). These new investments add to Fosun Pharma’s existing strong R&D and pharmaceutical businesses, with portfolio companies including Wanbang (万邦医药), and Yao Pharma (药友制药), etc., having created high innovation capabilities for Fosun’s health ecosystem. In the meantime, Fosun has invested in medical diagnosis and medical devices R&D and manufacturing companies, such as Alma Lasers (a cosmetic laser equipment maker), Saladax Biomedical (diagnostic assays maker), and Sisram (an aesthetic medical treatment system manufacturer), to further complete its portfolio in the upstream of its healthcare value chain.

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Various downstream Downstream: Fosun Pharma with supplementary channels. Fosun Pharma has also distribution channels invested heavily to expand its downstream online and offline distribution channels to reach capturing different kinds closer to retail customers, mainly through Sinopharm’s (1099 HK, not rated, an associate of customers of Fosun Pharma) distribution network, Fosun Pharma’s own hospital networks, online platforms and other health services and health management providers. These downstream channels have enabled Fosun’s health ecosystem to have numerous interactions with various types of customers.

 Retail distribution and hospital network. As of end-1H18, Sinopharm’s wholesale business reached direct customers consisting of 15,118 ranked hospitals, 130,893 small institutions (including basic medical institutions) and 95,971 retail pharmacies in China, while its retail drug store brand, GuoDa Drug Store, had 4,004 retail pharmacies. Fosun also owns a full hospital network, covering premium, general and specialised hospitals and its portfolio of hospitals is mostly located in the Yangtze River Delta and the Pearl River Delta, where they can exploit medical needs in these wealthy regions. Fosun Pharma’s hospital network includes Chancheng Hospital (佛山禅城医院, a Class III hospital in Foshan, Guangdong), Zhongwu Hospital (a Class II hospital in Jiangsu), Guangji Hospital (a Class II hospital in Hunan), and Jimin Cancer Hospital (first hospital specialised in cancer in Anhui Province), etc., and owns 3,818 beds in total as at end- 2017. Fosun Pharma has also invested in United Family Healthcare (UFH, “和睦家”), a well-known high-end clinical network in China focusing on premium medical services to high-net-worth groups. UFH has already built hospitals and clinics in major tier-1/tier-2 cities such as Beijing, Shanghai, Tianjin and Qingdao.

 Health services. Apart from Fosun Pharma’s distribution network, Fosun has also invested in other aspects of the healthcare ecosystem, including senior care, health insurance, third-party administer, and healthy lifestyle products. Fosun’s Starcastle Senior Living provides high-end senior care services, accommodating c.1,200 seniors in its first 2 projects as of end-2017. Fosun has also co-established Fosun United Health Insurance in 2017, selling medical insurance, illness insurance, disability and accident insurance, etc. As of end-2017, it has served more than 65,000 group and individual customers. Fosun has also invested in other areas within the health ecosystem, such as Star Healthcare (a health management service and third-party insurance service provider) and Sanyuan Food (a Chinese dairy producer).

 Online healthcare platforms. Besides an extensive offline distribution network, Fosun has also invested in online healthcare platforms, namely We Doctor (微医, see details in later section) and Babytree (宝宝树). We Doctor provides online healthcare services through its mobile apps and Guahao (挂号网) online portal, with key products and services including online medical appointments, diagnosis and consultation services and online medical product sales. It had 150m registered users as of end-2016 and 2.4m monthly MAUs in March 2018. Babytree, on the other hand, is the largest and most active maternity and childcare focused community in China, with an average total MAUs of 139m in 2017, according to its prospectus.

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Fosun: distribution channels and customer reach of health ecosystem

Distribution Channel Major Brands Customer Reach

Wholesale & Retail 15,032 ranked hospital- customers

3,834 retail pharmacies

Hospital network 3,818 hospital beds

7.5m annual in-/out-patients

1,200 seniors receiving senior Health services care

65,000 group and individual insurance costumers

150m registered WeDoctor users Online platforms 139m average total MAUs of Babytree

Source: Company, Fosun Pharma, We Doctor, Babytree, Daiwa Note: WeDoctor’s registered users as of 2016; other numbers as of 2017

Alibaba: platform centred on the health ecosystem Alibaba’s strategy in the health ecosystem remains platform-centric, with services focusing on health products and medicine sales. Its major healthcare platforms include AliHealth (阿里健康) and T-Mall Pharmacy (天猫医药馆).

Alibaba’s health AliHealth provides online medical services, personal health management and health ecosystem: platform- product sales services. Its self-operated online stores, AliHealth Pharmacy (阿里健康大药 centric strategy 房), sells a full spectrum of healthcare products including drugs, health supplements, personal care & skincare, contact lenses, family planning products and small medical devices, and had accumulated more than 15m annual active consumers by end-March 2018. AliHealth’s medical services platform, connecting patients and users of apps within Alibaba group with medical practitioners and pharmacists, has provided average daily consultation sessions of more than 50,000 and had nearly 23,000 registered medical professionals on its platform as of end-March 2018.

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Alibaba: health ecosystem

ALIHEALTH APP ALIHEALTH PHARMACY “MY HEALTH” ON T-MALL APP

Key functions

Key product categories

Links to insurance sales and AliHealth Pharmacy

Source: AliHealth, Daiwa

Consumption ecosystem Fosun’s and Alibaba’s consumer ecosystems mainly differ in terms of their customer acquisition channels and the direction of integration. Customer acquisition at Fosun is almost entirely through offline brands and distribution channels, while it is mostly online for Alibaba. However, they are both enhancing their presence in the opposite regime (ie, Fosun in online channels and Alibaba in offline) to provide a more integrated service and cover more retail scenarios in consumers’ daily lives. In terms of integration strategies, Fosun already owns various individual brands and is trying to create an integrated platform to promote more synergies, while Alibaba mostly operates online platforms and is expanding its “new retail” ecosystem by actively investing in offline retail channels.

Fosun: offline-to-online consumer ecosystem Fosun’s consumer Fosun has historically focused on building an offline retail ecosystem, by heavily investing ecosystem: offline to in various retail brands ranging from food & beverage to apparel & accessories. This offline online strategy ecosystem is also a major source of Fosun’s customer acquisition. Starting in 2018, it has shifted its retail strategy to gradually migrate its offline customers to online platforms (including “You Le”), while continuing to add more brands to the consumer ecosystem portfolio and further enhance integration and synergies within its existing businesses.

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Fosun: offline-to-online consumer ecosystem CONSUMER TOURISM & LIFESTYLE FASHION

(Tsingtao Beer) (AHAVA) (BONA Film) (Cirque du Soleil) (Club Med) (Folli Follie) (Lanvin) (Wolford)

(Juewei Food) (Cosmo Lady) (Thomas Cook) (Albion) (Atlantis) (Tom Tailor) (St. John) (Kutesmart)

OFFLINE ONLINE

(Yuyuan Mall) (Youle) 45m annual 140m registered customers members

Source: Company, Daiwa Note: 1) including subsidiaries, joint ventures, associates, and other member companies; list not exhaustive; 2) Yuyuan Mall’s annual customers as of 2017; 3) “You Le”’s number of registered members as of June 2018

Offline-to-online migration. Fosun has been increasingly valuing the online distribution channel combined with its existing strong offline channels in China, as management has specifically mentioned that its priorities after an acquisition (especially for overseas brands) are to: 1) bring the offline brands online, and 2) increase the presence of these brands in China and make them available to Fosun’s existing customer base. For example, after acquiring Silver Cross, a premium maternal brand in the UK in 2015, Fosun helped open its online store for a more convenient shopping experience. It also introduced Silver Cross’s products on the Babytree platform (an online maternity and childcare community platform in China which is a member company of Fosun’s ecosystems) to increase cross- selling opportunities.

Fosun’s consumer Offline to integrated online platform. Fosun’s major consumer and lifestyle brands ecosystem: strong owned strong offline/online distribution channels previously (such as Tsingtao Beer, Juewei traditional offline Food, Cosmo Lady, Folli Follie, and Tom Tailor), while Fosun also distributes products of its consumer scenarios to key brands at Yuyuan Mall and Bund Finance Center, 2 shopping centres in Shanghai. In be migrated online 2018, Fosun has established an integrated online platform and loyalty programme, “You through the “You Le” Le”, to create an online consumer ecosystem to retain customers of any Fosun brand and platform shoppers at Yuyuan Mall (annual visitor base of 45m) and attract them to repeatedly interact with member companies of Fosun. In the meantime, customers are rewarded with loyalty points when they interact with any Fosun member brand.

“What we are doing is the reverse of Alibaba. We are doing Offline to Online to embrace the ‘New Retail’. We already have a strong Consumer customer base in our ‘C2M’ strategy.”

– Wang Qunbing, CEO of Fosun International

Customer interface for migration. “You Le” serves as the key customer interface in Fosun’s consumption ecosystem to move from offline to online. During sales campaigns

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such as “Double 11” and “618”, “You Le” also hosts sales promotions of products within Fosun brands to promote customer awareness on the “You Le” brand and platform.

Having launched in February, “You Le” now has a total user base of 148m (as of end- August 2018; mostly acquired through offline sources), and more than 80 brand partners. “You Le” also launched an e-commerce platform in June 2018, namely “Youle Life Pavillion” (有叻生活馆), through a webpage and its official Wechat account. It offers products and services at competitive prices from popular retail and tourism brands affiliated with Fosun, including but not limited to Tsingtao Beer, Sanyuan Dairy, AHAVA, Club Med, and Foliday.

Fosun’s offline customer acquisition points (such as Yuyuan and BFC) have also provided services that enable collection of customers’ online data, such as a 3D map that is linked to users’ social accounts, which could then be used for promotions of brands in Fosun’s consumer, tourism or entertainment ecosystems.

“’Youlè’ is a thread which strings together all these pearls of Fosun industries, enabling these companies to collaborate in depth in all aspects of product, sales, and marketing, and to provide a never-ending driver for building a happiness ecosystem.”

– Nicholas Wang, Chief Customer Experience Officer of Fosun International

Alibaba: “New Retail” consumer ecosystem from online to offline Alibaba’s “New Retail” Alibaba has the opposite strategy to Fosun in the consumer ecosystem, ie, from online to strategy is from online to offline. With its major business and most customers online, Alibaba has invested in various offline offline retail chains to complete its “New Retail” ecosystem.

“New Retail” integration. Alibaba proposed its “New Retail” strategy in 2016, and has been investing actively in offline retail businesses that could be integrated into its online platforms. In the home appliance segment, Alibaba has invested in Suning (苏宁), one of the largest online/offline retailers in China; and in the retail chain segment, Alibaba has invested in major department store chains and supermarket brands including Intime Retail (银泰商业), Sanjiang Shopping Club (三江购物), and Sun Art Retail Group (高鑫零售). More recently in February 2018, Alibaba announced an investment in Easyhome (居然之家), a retail furniture store chain in China. Alibaba’s aggressive expansion and promotion of its own offline supermarket brand, Hema (盒马), have also demonstrated its ambition in further completing its closed-loop online-to-offline consumer ecosystem.

Other O2O scenarios. Unlike Fosun, which directly owns consumer brands in areas covering food and beverages, fashion and apparel, jewellery and other accessories, etc, Alibaba diversifies its exposure by investing in platforms addressing these specific needs. Other than retailers, it has also been heavily investing in O2O platforms such as Didi (滴滴, a specialised urban transportation services platform), ofo (bike sharing), and Eleme (饿了么, a food delivery platform).

“’ We anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value chain.”

– Jack Ma Yun, Executive Chairman of Alibaba Group

Tourism ecosystem Fosun has integrated its offline tourism resources, including hotels & resorts and travel agencies, and migrated them to online distribution channels, while Alibaba’s tourism

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ecosystem is entirely based on online travel platforms, and runs a pure “marketplace” model.

Fosun: offline-to-online “direct sales” model Fosun’s Tourism Fosun has integrated its tourism ecosystem under the “FOLIDAY” brand, including Club ecosystem: “direct Med, Atlantis Sanya, Albion (爱必侬, a China-based travel agency and tour operator) and sales” model its local travel agency JV with Thomas Cook (托迈酷客). We believe its integration not only helps its overseas tourism assets to gain Greater China exposure, but also facilitates a migration of the whole ecosystem from offline channels to online ones, as the tourism ecosystem has already been another major offline customer acquisition point for Fosun.

Overseas to China domestic market. Club Med sits at the centre of Fosun’s tourism assets. Fosun creates tailored travel packages for Chinese families to stay at Club Med in global destinations through its travel and tour agencies, Albion and Thomas Cook, while creating a new Club Med brand, Club Med Joyview, to target families seeking short-term vacation destinations in proximity to their residing cities. These localised measures have helped Club Med gain c.200k customers from the Greater China Region on an annual basis, and China has become its second largest market after France since 2016.

We see the offline-to-online migration of the tourism ecosystem creating significant synergies not only within the ecosystem itself but also within Fosun, as Club Med and Atlantis are among the major offline customer contact endpoints and customer acquisition terminals for Fosun. Club Med owned 69 resorts globally at end-1H18, with 5 in China. It also opened 2 Club Med Joyview resorts in China in January 2018. In 2017, Club Med’s annual customer base reached more than 1.35m visitors globally, with c.200k from the Greater China Region. Atlantis, located in Sanya, Hainan, one of China’s most popular vacation destinations, owns one of China’s largest natural seawater aquariums, a waterpark covering c.200,000 square meters, and a resort with 1,314 guest rooms and has been in operation since April 2018. Both resorts enable customer connections with the “You Le” platform and lead to further interactions with other Fosun brands within or outside of the tourism ecosystem.

Fosun: tourism ecosystem Fosun: tour packages under Albion and Thomas Cook ALBION TOURS THOMAS COOK TOURS

CLUB MED 69 resorts globally

2 Club Med Joyview resorts in China

>1.3m annual customer base

200k from Greater China Region

ATLANTIS 1,314 guest rooms

1,000 residential vacation units

Source: Company, Daiwa Source: Fliggy, Daiwa Note: number of resorts and customer base for Club Med as of end-1H18

Alibaba: online platform provider Similar to Alibaba’s approach in other ecosystems, its key focus in the tourism ecosystem is also to build online tourism platforms and communities, rather than adopting a heavy asset model with direct investments in offline vacation destinations or operators.

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Alibaba operates one of the largest online travel platforms in China, Fliggy (飞猪), which provides comprehensive travel services including but not limited to flight/train ticket bookings, hotel bookings and tour reservations. At end-2017, Fliggy’s mobile app MAU reached c.150m, ranked the third among all online travel booking apps, according to Analysys. It has also invested in other tourism-related online platforms, such as qyer.com (an online travellers’ community) to complete its online tourism ecosystem.

Entertainment ecosystem Fosun’s entertainment Fosun’s and Alibaba’s entertainment ecosystems share a focus on the movie/TV show ecosystem: family- segment. While Fosun has created a family-oriented and content-generating entertainment oriented global portfolio ecosystem, Alibaba has fully integrated an entire value chain for its entertainment ecosystem.

Fosun: family-oriented global portfolio Aligned with the group’s strategic focus, Fosun’s entertainment ecosystem is built based on Chinese’ families’ entertainment needs, while it focuses on content generation rather than a full integration of the value chain.

Fosun has invested in entertainment content generators such as Studio 8 (a Hollywood film production company), Cirque Du Soleil, (a Canadian theatre entertainment company), BONA Film (博纳影业, a Chinese film production and distribution company) and Hotread.com (an online literature website), and helped them to penetrate the Chinese market. For example, Fosun brought Cirque Du Soleil on a China tour of its popular show “Kooza” to major Chinese cities in 2017-18, while providing regular “Toruk” shows in Sanya during 1H18.

Fosun bought the English football club Wolverhampton Wanderers F.C. (“Wolves”) in July 2016 when the team played in the 2nd-tier league. In May 2018, Wolves won the English Football League Championship and was hence promoted to the top-tier Premier League. Since Fosun’s investment, Wolves has collaborated with many of the Group’s other consumer-facing products, including Tsingtao Brewery, Club Med and Thomas Cook on marketing and sales strategy worldwide.

Cirque du Soleil: Kooza BONA Film: BONA Cinemas IMAX

Source: Company Source: Company

In June 2018, Fosun announced the establishment of Fosun Pictures and plans to invest in more entertainment companies with their own IP/content. Its first movie “Alpha”, jointly produced with Columbia Pictures and The Picture Company, made its debut in the United States on 17 August 2018, and will be shown in Mainland Chinese cinemas from 7 September. The movie is an epic adventure set in the last Ice Age, in which a man domesticates a wolf. “Alpha” uses various Western Hollywood-style expressions and filming techniques to tell a story centred around Asian “family” values.

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Movie “Alpha” jointly produced by Fosun International

Source: Company

“The ability to be driven by both China and the world at the same time will be one of our strongest competitive strengths in the future…. we are hoping to take advantage of the rise of the Chinese consumer market and “bring back” high-quality overseas brands and products”

– Guo Guangchang, Chairman of Fosun International

Alibaba: vertically integrated entertainment ecosystem Alibaba’s entertainment Alibaba has created a vertically integrated entertainment ecosystem, covering literature, ecosystem is China- movies and videos, and music segments while containing full processes of IP creation, focused and vertically production and distribution, as well as ticket sales. integrated In the online literature segments, Alibaba owns Shuqi.com (书旗小说) and UC Books (UC 书城), which serves as a source of IP for its movie and video production businesses. In the movies and videos segment, Alibaba owns or has invested in movie producers and distributors such as Alibaba Pictures (阿里影业), Light Media (光线传媒), Huayi Brothers (华谊兄弟) and BONA Film. It also invested heavily in businesses that directly interact with customers, including online video platforms such as Youku Tudou (优酷土豆), Mango TV (芒果 TV) and Acfun, and online ticket sales terminals like Taobao Movie (淘票票) and Damai.com (大麦网). In the music segment, Alibaba has invested in SM Entertainment (a South Korean entertainment company) for content generation, and Ali Music and Xiami (虾米音乐) as online music platforms.

Alibaba: comprehensive media group

Source: Company, Daiwa

Fosun (656 HK): 5 September 2018

Fosun & Alibaba’s engagements in sports

Source: Company, Daiwa Note: Fosun International owns 100% of Wolverhampton Wanderers F.C. ; Alibaba owns 40% of Guangzhou Evergrande Taobao Football Club.

Fosun (656 HK): 5 September 2018

Positioning of Fosun’s portfolio companies

Despite having over 300 companies in its investment portfolio, Fosun has divided them into 3 distinct ecosystems based on the criteria of family needs that the company addresses, namely health, happiness, and wealth ecosystems.

While the health and happiness ecosystems offer frequent interactions with Fosun’s retail and family customers in China through their healthcare, tourism and consumption products and services, the wealth ecosystem is focused on generating consistent cash flow and net profit to fuel the group’s investments and expansion. Fosun’s more than 300 portfolio companies are We further elaborate below on the positioning of Fosun’s 3 ecosystems and highlight a few divided into health, major portfolio companies within each. We also provide 2 case studies on Fosun’s post- happiness, and wealth investment strategies for We Doctor and Fidelidade to demonstrate how Fosun “buys & ecosystems operates” companies that it has invested in and creates synergies within the group.

Fosun: positioning of portfolio companies

Source: Company

Fosun: profit attributable to owners of the parent by business segment

Health Ecosystem Happiness Ecosystem Wealth Ecosystem +23% (CNYmn) +60%

5,218

4,245 +5% +32% 3,903

+6% 2,440 2,075 2,171 1,372 1,039 469 498

Health ecosystem Happiness Ecosystem Insurance & Finance Investment Hive Property 2016 2017

Source: Company, Daiwa

Fosun (656 HK): 5 September 2018

Health ecosystem Fosun’s health Fosun’s health ecosystem consists of 3 main segments: pharmaceutical, medical services ecosystem: a major & health management, and health products. These businesses combined made up 14% of online/offline customer Fosun International’s assets as at end-2017, and contributed 10% of the group’s 2017 acquisition channel and earnings. Fosun Pharma, as the core asset of the health ecosystem, is one of the oldest contributes steady profit subsidiaries of Fosun, and its long operating history has helped it to create a holistic healthcare ecosystem along with the group, covering almost all aspects of health-related businesses. On a group level, the health ecosystem serves as a major online/offline customer acquisition channel for Fosun, while contributing steady profit and cash flow to the group.

The pharmaceutical segment within this ecosystem mainly operates through Fosun Pharma, its JVs/associates and other affiliated companies, focusing on R&D innovation, pharmaceutical manufacturing and distribution.

The medical services & health management segment mainly includes We Doctor (an online doctor network and medical platform), Fosun United Health Insurance, Star Health (a third-party administrator for insurance in China), Luz Saúde (a private healthcare group in Portugal), and Starcastle Senior Living (a high-end elderly care centre in China).

The health products segment in the health ecosystem focuses on healthy foods, maternity products, personal healthcare and senior care products. It consists of Silver Cross (a high-end British maternity brand), Sanyuan Foods (a dairy brand), Juewei Food (a braised food brand), Proxima (a medical imaging AI company), and St Hubert (a French organic margarine brand).

Fosun: health ecosystem value chain Diagnosis & Medical R&D Manufacturing Distribution & Retail Health Services & Others Devices

Fosun Pharma Company overview. Founded in 1994, Fosun Pharma is a comprehensive healthcare company with a multi-national presence in the full value chain of the health and pharmaceutical businesses. It has strong upstream R&D and pharmaceutical manufacturing capabilities, while it has also invested in almost all types of distribution channels in the downstream, including wholesalers, drug stores, online doctor network and a complete portfolio of hospitals. Despite being active in overseas M&A transactions in the upstream businesses, including R&D and pharmaceutical manufacturing, Fosun Pharma’s main customer base and distribution channels are still in China. It has also been actively

Fosun (656 HK): 5 September 2018

investing in medical diagnosis, medical devices, health services and health management to further supplement its health ecosystem. As of end-2017, Fosun International owned a 37.94% equity interest in Fosun Pharma.

Operating statistics. Fosun Pharma recorded revenue of CNY18.4bn for 2017, posting a CAGR of 21.2% during 2015-17. Among its 3 major business segments – namely pharmaceutical manufacturing and R&D, healthcare services, and medical devices & medical diagnosis – healthcare services has recorded the fastest growth with a 23% revenue CAGR over the same period. As Fosun Pharma has been increasing its R&D investments in innovative technologies such as Biosimilars, CAR-T treatment and robotics, its net profit recorded a slower CAGR of 12.7% over the period.

Fosun Pharma has strong upstream R&D and pharmaceutical manufacturing capabilities, with 21 formulation items or series recording revenue of over CNY100m each in 2017 (except those under Gland Pharma), and 171 pipeline drugs, generic drugs, biosimilars and consistency evaluation products at end-2017. Fosun Pharma owns 27 products/series that have entered the National Basic Medical Insurance, Work-Related Injury Insurance and Maternity Insurance Drugs Catalogue (2017 version) (《国家基本医疗保险、工伤保险和生育保险药品目录》(2017 年版)), among which 5 were newly entered in 2017.

Downstream distributions. Fosun Pharma has also invested heavily to expand its downstream online and offline distribution channels, mainly through Sinopharm’s distribution network, We Doctor (see below for details), and its hospital networks. As of end-1H18, Sinopharm’s wholesale business reached direct customers consisting of 15,118 ranked hospitals, 130,893 small institutions (including basic medical institutions) and 95,971 retail pharmacies in China, while its retail drug store brand, GuoDa Drug Store, had 4,004 retail pharmacies. Fosun Pharma’s hospital network, including Chancheng Hospital, Hengsheng Hospital, Zhongwu Hospital, Wenzhou Generic Hospital, Guangji Hospital, Jimin Cancer Hospital and Zhuhai Yannian, etc., owned 3,818 beds in aggregate at end- 1H18. Its strong offline distribution channels, in addition to We Doctor’s 2.4m online monthly MAUs, provide Fosun Pharma with vast reach to retail customers and a unique competitive position.

Fosun Pharma: revenue breakdown (2017) Fosun Pharma: segment profit breakdown and YoY attributable profit growth

Medical devices (CNYm) and medical 5,000 33% 40% diagnosis, 18% 4,000 30% 16% 14% 11% 20% 3,000 1% 10% Healthcare 2,000 services, 11% 0% 1,000 (10%) 0 (20%) Pharmaceutical 2012 2013 2014 2015 2016 2017 manufacturing Pharmaceutical distribution and retail Medical devices and medical diagnosis and R&D, 71% Healthcare services Pharmaceutical manufacturing and R&D Attributable profit YoY growth (RHS) Source: Company, Daiwa Source: Company, Daiwa

We Doctor: Case study – “Buy & Operate & Synergy” We Doctor is an example Company overview. We Doctor (微医), formerly known as Guahao (挂号网), was founded of how Fosun adds value in 2010 in Shanghai. WeDoctor mainly provides online healthcare services through its to its portfolio of mobile apps and Guahao online portal. Key products and services include online medical companies appointments, diagnosis and consultation services and online drug sales. We Doctor also established China’s first Internet hospital, Wuzhen Internet Hospital, in December 2015. In its pre-IPO financing in May 2018 led by AIA and NWS Holdings with a USD500m investment, We Doctor was valued at USD5.5bn. Fosun’s subsidiaries (including Fosun

Fosun (656 HK): 5 September 2018

Capital and Fosun Pharma) have participated in a total of 3 rounds of financing for We Doctor with c.10% equity stakes after the latest round of financing.

Operating statistics. As at November 2017, Wuzhen Internet Hospital had connected a total of 260k experienced doctors, 7,200 healthcare professional experts, and over 10k offline pharmacies. Based on Analysys data, We Doctor’s registered users on its platforms reached 150m as at end-2016 and the monthly MAUs for its mobile app were 2.4m as of March 2018. Please click here, pages 42-47, for a comparison of We Doctor and Ping An Good Doctor (1833 HK, HKD44.15, Buy [1]).

Fosun’s offline medical service capacity acts as a natural extension of We Doctor’s online platform, which mainly includes medical appointments, doctor consultation services and drug sales. A variety of offline medical services under Fosun’s umbrella, including hospitals, medicine wholesalers, health services providers and health insurance companies, come into play here. For example, We Doctor provides hospitals with an online platform to promote their offline healthcare and health management services to We Doctor’s mobile app and web users. Hospital brands under Fosun Pharma, such as United Family Healthcare (UFH, “和睦家”), have established their own hospital page on We Doctor and made their health service plans available on the We Doctor platform. We Doctor also sells drugs on its platform, providing an online distribution channel for pharmaceutical brands under Fosun Pharma and its affiliated wholesaler, Sinopharm.

Happiness ecosystem The company’s happiness ecosystem includes 3 major segments, tourism & leisure, fashion, and consumer & lifestyle. It made up 7% of the group’s assets as of end-2017, and generated 13% of 2017 revenue and 4% of net profit. The happiness ecosystem is Fosun’s happiness also an important offline customer acquisition channel for Fosun, as its member companies ecosystem: an important cover Chinese families’ various retail and consumption needs. customer acquisition channel The tourism & leisure segment primarily conducts business in the development, management and operation of premium hotels and resorts, mainly through Club Med (a global vacation resorts group) and Atlantis (a premium resort in Sanya, Hainan), as well as travel-related products and services through Thomas Cook (a British travel agency).

The Fashion segment consists of the group’s strategic investments in a collection of brands, including Lanvin (a French luxury fashion brand), Tom Tailor (a German fashion group), Folli Follie (a Greek jeweller), Kutesmart (a Chinese customized clothing manufacturer), etc.

Consumer & lifestyle businesses feature Yuyuan, a retail conglomerate based in Shanghai and the owner of 2 jewellery brands, commercial, retail and recreational properties and food and beverage businesses. The segment also contains the group’s various retail-and-consumer-related investments, such as Cirque Du Soleil (a Canadian theatrical entertainment company), Studio 8 (a Hollywood film producer), and Tsingtao Brewery (one of China’s oldest and most renowned brewers).

Fosun (656 HK): 5 September 2018

Fosun: happiness ecosystem CONSUMER TOURISM & LIFESTYLE FASHION

(Tsingtao Beer) (AHAVA) (BONA Film) (Cirque du Soleil) (Club Med) (Folli Follie) (Lanvin) (Wolford)

(Juewei Food) (Cosmo Lady) (Thomas Cook) (Albion) (Atlantis) (Tom Tailor) (St. John) (Kutesmart)

OFFLINE ONLINE

(Yuyuan Mall) (Youle) 45m annual 140m registered customers members

Club Med Club Med is a good Company overview. Club Med is a French vacation resort chain that owned 69 resorts example of how “global located in 26 countries globally as of end-1H18, including more than 20 ski resorts. Fosun platform matching with has been a strategic investor in Club Med with a 7.1% stake since 2010, and privatised it in China consumerism” February 2015. The group held a 91.83% equity interest in Club Med as of end-1H18. works Operating statistics. Club Med reported revenue of EUR1,577m for the year ended October 2017, posting a revenue CAGR of 4.7% and operating profit CAGR of 26% during 2015-17, after Fosun took control. Club Med’s financial performance has seen substantial improvements compared with EUR11-12m in net losses in 2013-14 and a contraction in its customer base, prior to the company’s privatisation by Fosun in December 2014. In 2017, Club Med’s annual customer base has grown to more than 1.3m visitors globally, up from 1.2m in 2016. China has become its second largest market after France since 2016, with c.200k from the Greater China Region and 406k from France.

After opening 5 resorts in China (Yabuli, Guilin, Zhuhai Dong’ao, Sanya and Beidahu), Club Med launched a new brand, “Club Med Joyview”, in 2017, offering premium short- term vacation resorts in China. In January 2018, it opened Club Med Joyview resorts in Changli Golden Coast and Anji, both in weekend destinations that are within a 3 hours’ drive from tier-1/tier-2 cities such as Beijing/Tianjin, and Shanghai/Hangzhou. Club Med also plans to open 20 more resorts or villages around the world by 2020.

Fosun (656 HK): 5 September 2018

Club Med: Kani Maldives resort Club Med Joyview: Changli Golden Coast resort

Source: Company Source: Company

“You Le” (有叻) Platform overview. “You Le” is a membership scheme that enables centralised loyalty points accumulation for all Fosun member brands, providing a platform for all brands owned or invested by Fosun to connect with online and offline customers. Launched at the beginning of 2018, “You Le” is seen as a key platform for Fosun’s C2M strategy by management, as it is able to facilitate more frequent interactions with customers online and thus obtain more customer data to produce tailored services from “makers”. “You Le” currently offers 3 types of membership level: silver, gold and platinum, with different rewards and discounts on its health, tourism and lifestyle products and services.

“You Le” is a new Having launched in February, “You Le” has 148m total user base (as of end-August 2018; initiative in which Fosun mostly acquired through offline sources), and more than 80 brand partners. Fosun’s aims to bring together management sees “You Le” as: its consumer-related offerings to one online 1) An online portal to promote offline products and services. “You Le” provides an platform online platform which aims to attract Fosun’s various offline customers obtained through flagship brands, such as Yuyuan, Club Med, and Fosun Pharma, and migrate them to the online consumption of other products under Fosun’s umbrella. In the meantime, customers are rewarded with loyalty points when they interact with any Fosun brand.

Following the “618 Sales Festival” in June 2018, “You Le” launched its e-commerce platform, “Youle Life Pavillion” (有叻生活馆), currently through its WeChat official account and a mobile app in the future. It offers products and services at competitive prices from popular retail and tourism brands affiliated with Fosun, including but not limited to Tsingtao Beer, Sanyuan Food, AHAVA, Club Med, and FOLIDAY. Fosun has guided that not all products from member companies are made available on “Youle Life Pavillion”, but only selected products that fit Chinese families’ greatest needs. “You Le” also plans to open offline and/or pop-up stores in the future to distribute these products to adopt an omni- channel strategy.

Fosun (656 HK): 5 September 2018

“You Le”: advertisement for “618 Sales Festival”

Source: Company, Daiwa

2) A platform that vertically integrates affiliate companies to cover family needs at different stages. “You Le” also integrates Fosun’s brands on its platform to cover all aspects of a family’s life. For example, Fosun has already built a complete maternity and childcare sub-ecosystem targeting new and young families. The subecosystem consists of products and services providers ranging from dating & marriage (Baihe Jiayuan [百合佳缘], Blove, etc), honeymoon & family tourism (Club Med, Atlantis, Foliday, etc), pregnancy & baby care (Babytree [宝宝树]) to pre-school education (Friends of the Vienna Boys Choir Kintergarten, Huivo [慧沃]). Brands under this vertically integrated sub-ecosystem are expected to be made available to the “You Le” platform to increase stickiness of family customers to the Fosun member brands.

3) An e-commerce platform that promotes the Fosun brand during sales campaigns. During sales campaigns such as “Double 11” and “618”, “You Le” also hosts sales promotions of products within Fosun brands. Due to the popularity and high participating rate of these nationwide multi-platform sales events, management targets for “You Le”’s promotions to boost its platform and brand awareness among Chinese consumers.

“You Le”: mobile platforms WECHAT PLATFORM MEMBERSHIP PAGE “618” SALES CAMPAIGN (1) “618” SALES CAMPAIGN (2)

Membership card

Product offerings across all three ecosystems Products offered by Fosun-affiliated brands

Source: Company, Daiwa

Fosun (656 HK): 5 September 2018

Fosun: offline-to-online strategy through the “You Le” platform

HEALTH ECOSYSTEM HAPPINESS ECOSYSTEM WEALTH ECOSYSTEM

(Fosun Pharma) (GuoDa Drugstore) (Tsingtao Beer) (Lanvin) (Club Med) (Yong An Insurance) (Pramerica Fosun Life Insurance)

(United Family Healthcare) (Tom Tailor) (Juewei Food) (Atlantis) (Fosun United Health Insurance)

Customer data Customer acquisition

collection, loyalty points and directionz to

program, and promotionz online platform events to increase (Yuyuan Mall) stickiness to Fosun’s 45m annual customers (The Bund Finance member brands Center) OFFLINE CHANNELS

OFFLINE-TO- ONLINE

(Youle) 140m registered members

Source: Company, Daiwa Note: 1) brands including subsidiaries, joint ventures, associates, and other member companies; list not exhaustive; 2) Yuyuan Mall’s annual customers as of 2017; 3) “You Le”’s number of registered members as of June 2018

Wealth ecosystem Fosun’s wealth Fosun’s wealth ecosystem is composed of 3 main segments: insurance & finance, ecosystem: major investments, and hive property. At end-2017, the wealth ecosystem accounted for 81% of contributor of the group’s total assets, and contributed 62% of the revenue and 86% of the net profit in investment fund and net 2017. Although most of the assets do not provide direct customer acquisitions for Fosun, profit the wealth ecosystem, especially the insurance and property businesses within it, are the major contributor of the group’s investment fund, net profit and cash flows.

The insurance and finance segment is the key funding source for the group’s various investments. It accounted for 45% of the group’s assets at end-2017, with an average cost of investable assets of 1.4% for 2017. Major insurance companies within this segment include Fidelidade (a Portuguese comprehensive insurer), Peak Re (a Hong Kong-based global reinsurer), AmeriTrust (a US P&C insurer), Pramerica Fosun Life (a China life insurer), and Yong An P&C Insurance (a China P&C insurer), covering a full spectrum of domestic and overseas life & health, P&C, and reinsurance businesses. Fosun also owns stakes in domestic and overseas banking and securities businesses, including Fosun Hani Securities (based in Hong Kong), H&A (a private bank in Germany), Millennium BCP (the largest listed bank in Portugal), and Mybank (an internet commercial bank in China).

During 2015-17, the insurance and finance segment recorded a revenue CAGR of 25%, excluding the impact of Ironshore, with its 2017 revenue and net profit making up 32% and 30% of those at the group level, respectively.

Fosun (656 HK): 5 September 2018

Wealth ecosystem: investable insurance assets and total investment yield comparison (2017) (CNYm) 140,000 7.1% 8% 116,800 120,000 7% 100,000 6% 4.3% 5% 80,000 3.6% 3.6% 3.0% 4% 60,000 3% 40,000 2% 10,530 10,060 10,650 20,000 3,770 1% 0 0% Fidelidade AmeriTrust Peak Reinsurance Pramerica Fosun Life Yong'an P&C Insurance Insurance Investable assets Total investment yield (RHS)

Source: Company, Daiwa

The investment segment mainly consists of Fosun’s primary market investments, such as Cainiao (a logistic network in China), its asset management business, such as Fosun Capital (an equity investment management) and IDERA (a Japanese real estate capital manager), and its resource and mining assets including ROC (an Australian oil and gas company), Hainan Mining (an iron mining company), and Nanjing Nangang (an iron and steel company). As at end-2017, the segment accounted for 14% of the group’s total assets; it contributed to 5% of the group revenue in 2017, and 40% of the net profit.

The hive property segment operates Forte (property developer), 28 Liberty (an office building in Lower Manhattan, NYC), and the Bund Finance Center (BFC, a financial complex in Shanghai). The segment generated 25% of the group’s revenue and 16% of the net profit in 2017.

Fidelidade: Case study – “Buy & Operate & Synergy” Fidelidale: an example of Company overview. Fidelidade is one of the oldest insurers in Europe and the largest Fosun’s “buy & operate” comprehensive insurers in Portugal by total premiums, operating life, P&C and reinsurance business model businesses mainly in Portugal and other Portuguese-speaking countries. Other than Portugal, it also has a business presence in the rest of Europe, Africa and Asia.

Fosun acquired a controlling stake in Fidelidade in May 2014 from the Portuguese state during the company’s privatisation process, and had increased its stake to 84.99% by end- 2014. The remaining shares belong to the strategic business partner of Fidelidade, Caixa Geral de Depósitos (CGD), the largest financial institution in Portugal (wholly owned by the Portuguese State) and also a main distributor of Fidelidade’s life insurance products. Fosun also owns an 80% equity interest in 2 related companies of Fidelidade, Multicare and Fidelidade Assistência, and combined them to form Fosun Insurance Portugal (FIP).

Operating statistics. FIP combined had a domestic market share of 32.7% in Portugal in 2017, up by 2.8pp from 2014 when Fosun initially invested, according to the Insurance and Pension Funds Supervisory Authority (ASF). During 2014-17, Fidelidade recorded largely flat total premium income growth, despite a significant decline in the total premiums in the Portuguese insurance market (-13% CAGR during 2014-16) mainly as a result of a shrinking life insurance market due to the competitive Portuguese retail treasury yield and low interest rates. Over the same period, FIP posted a net profit CAGR of 9%, with a cost of investable assets of 0.8% and total investment yield of 3.6% for 2017. Its non-life arm recorded a combined ratio of 99% for 2017.

At end-2017, FIP carried CNY117bn-equivalent investable assets (around 22% of Fosun’s total assets at end-2017) and was the largest funding source and investment platform for Fosun.

Fosun (656 HK): 5 September 2018

Fidelidade: life insurance market share in Portugal (2016) Fidelidade: non-life insurance market share in Portugal (2016)

Fidelidade, 26%

Fidelidade, 35%

Remaining market, 65% Remaining market, 74%

Source: Company, Daiwa Source: Company, Daiwa

Agile, digital and innovative propositions under Fosun’s management. The “new” Fidelidade under Fosun’s control has repositioned its strategies regarding product offerings, distribution channels, and investment styles to generate better business performance and results.

Fidelidade has Products. Fidelidade focuses on differentiation and innovation in product and services to repositioned its product, attract customers in a shrinking market. In particular, it has adopted vertical integration in distribution and areas such as auto insurance and health insurance, to provide more comprehensive investment strategies services to customers while improving cost efficiencies. For example, since 2015, under Fosun’s operation Fidelidade’s health insurance segment has rolled out multiple niche products covering special health issues such as oncology, while leveraging its partnerships with the Portuguese medical network (including Luz Saúde, a Portuguese private healthcare group, also a subsidiary of Fosun) and Multicare’s online medical advice platform to provide integrated solutions to its policyholders. These all-round services have also boosted Fidelidade’s health insurance sales in turn, and as a result, the health business was the main driver of its premium growth in 2016-17.

We see this approach as similar to Fosun’s practice of building vertically integrated ecosystems to provide full services to customers while creating synergies within the group. And we believe the innovation and integration strategies are also a reason behind Fidelidade’s continued improvement in cost of investable assets, which dropped from 2.3% in 2015 to 0.8% in 2017.

Distribution channels. Fidelidade distributes products through various channels including agents, own branches, brokers, banks (mainly CGD), post offices (mainly CGD), telemarketing and the Internet (launched in 2016). Since 2015, Fidelidade has restructured and digitalised its internal network to provide more efficient back-office support to its agents and own branches. As a result, life premium sales from its traditional channels (including agents, own branches and brokers) increased by 54% YoY for 2016, significantly outpacing the 12% YoY decline in total life premiums. In 2016, it also launched its Internet insurance sales platform, enabling online purchases of its auto, health and home insurance.

Investment style. Prior to 2014, most of Fidelidade’s investment was in cash and Portuguese treasury bonds with minimal investments in other asset classes or foreign assets. This investment style exposed it to significant credit risk when Portugal’s sovereign debt was downgraded to junk status by all 3 major rating agencies during the European debt crisis. Fidelidade adopted a more diversified investment style after Fosun took over, with a higher proportion of investments in equity, investment properties, and other instruments. Fosun has also invested in subsidiaries and associates with insurance funds from Fidelidade to further diversify its investments and generate more stable investment spreads. Investments made through Fidelidade include Club Med, Tom Tailor, Thomas Cook, and Tsingtao Brewery, to name a few.

Fosun (656 HK): 5 September 2018

Key investments made by Fosun through Fidelidade Fidelidade: investment portfolio

Investment % Owned by 100% % Invested by Amount Fidelidade 11% 6% 10% 9% 13% 10% Date Company Fidelidade (USDm) (end-2017) 80% Dec-17 Tsingtao Brewery 2.6% 120 2.6%* 60% Mar-15 Thomas Cook 5.8% 140 7.2% 50% 61% 55% Feb-15 Club Med 20.0% 224 19.5% 40% Dec-14 Luz Saude 98.2% 389 98.8% 8% Aug-14 Tom Tailor 15.5% 78 12.6% 20% 5% 8% 12% Jul-14 BONA Film 10.6% 49 10.6% 10% 5% 0% End-2014 End-2015 End-2016 Cash Investments in associates/JVs Deposits Investment properties Debt instruments Equity instruments Others Source: Company, local news, Bloomberg, Daiwa Source: Company, Daiwa Note: transaction on Tsingtao Brewery was closed in March 2018

Peak Re Company overview. Peak Re was established by Fosun and International Finance Corporation in Hong Kong in 2012, underwriting both life and non-life reinsurance business in 60 countries globally. As of May 2018, Fosun and Prudential Financial held 86.9% and 13.1% of the company, respectively.

Operating statistics. In 2017, Peak Re posted premium income of USD1.1bn, implying a CAGR of 81% during 2013-17. Its net assets increased by 8.7% YoY on average during the same period, as a result of fast business expansion and consistently positive profit. In the meantime, the management expense ratio dropped from 29.5% in 2013 to 3.5% in 2017, due to higher business efficiency from economies of scale.

In 2017, Peak Re recorded a combined ratio (CoR) of 105.1%, as a result of the high frequency of severe global natural catastrophes in the year. However, its total investment yield was 7.1%, contributing to a net profit of USD30m, which more than tripled YoY from a low base in 2016. At end-2017, its solvency adequacy ratio stood at 433%, indicating an abundant capital level.

Peak Re: premium mix by region (2017) Peak Re: management expense ratio

35% 29.5% Americas, 20% 30%

25%

20%

15% EMEA, 18% 9.0% Asia Pacific, 10% 4.8% 4.7% 62% 3.5% 5%

0% 2013 2014 2015 2016 2017

Source: Company, Daiwa Source: Company, Daiwa

Bund Finance Center (BFC) Project overview. The BFC is a high-end financial complex located in the Bund in Shanghai, comprising 267k square metres of Grade A offices, a shopping centre, the Fosun Arts Center and a boutique hotel (ie, Wanda Reign on the Bund).

Operating statistics. The north buildings have been in operation since 1H16 (south buildings since 1H17), with an occupancy rate of 89% (52% for south buildings). The Wanda Reign on the Bund opened in June 2016, taking the top floors of the building. Its shopping centre within the complex has brought in major high-end entertainment, commercial and restaurant chains such as BONA Cineplex (a Fosun-affiliated entertainment chain), BRAVO supermarket, and Mini-Club as of end-February 2018.

Fosun (656 HK): 5 September 2018

Fosun: the Bund Finance Center

Source: Company

Fosun (656 HK): 5 September 2018

Financial forecasts Revenue growth by segment Company-level revenue growth In 2017, Fosun’s revenue reached CNY88.03bn, up 19% from CNY73.97bn in 2016. In terms of business segments, the wealth ecosystem contributed 62% of total revenue in 2017, of which insurance & finance, investment and hive properties accounted for 32%, 5% and 25%, respectively. The health and happiness ecosystem segments followed with 26% and 13% revenue contributions in 2017, respectively.

Revenue growth driven Overall, we forecast Fosun’s total revenue to expand at a 13% CAGR over 2017-20E and by synergies from 5 core reach CNY128bn in 2020E. We expect the health ecosystem’s revenue contribution to rise segments to 35% in 2020E from 26% in 2017, and the happiness ecosystem’s revenue contribution to account for 17% in 2020E vs. 13% in 2017.

Fosun: revenue by business segment Fosun: revenue mix by business segment (CNYbn) 100% 150 128 20% 25% 26% 29% 34% 35% 107 80% 101 9% 14% 88 45 13% 100 60% 19% 16% 79 74 18% 29 36 17% 22 32% 16 22 40% 38% 7 18 12 16 19 31% 33% 50 15 10 38% 38% 28 33 49 25 28 41 20% 21% 20% 25% 18% 17 15 22 18 0 8 7 0% 7% 6% 2015 2016 2017 2018E 2019E 2020E 2015 2016 2017 2018E 2019E 2020E Wealth Ecosystem - Hive Properties Wealth Ecosystem - Investment Health Ecosystem Happiness Ecosystem Wealth Ecosystem - Insurance & Finance Happiness Ecosystem Wealth Ecosystem - Insurance & Finance Wealth Ecosystem - Investment Health Ecosystem Wealth Ecosystem - Hive Properties Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Revenue drivers in major segments Health ecosystem. In 2017, the health ecosystem generated revenue of CNY22.5bn, up 24% YoY, which was mainly attributable to stable revenue growth for Fosun Pharma. We expect the health ecosystem to deliver a revenue CAGR of 26% in 2017-20E, backed by continual and foreseeable growth in Fosun Pharma, and the revenue contribution from health ecosystem to reach 35% by 2020E.

Happiness ecosystem. We note the happiness ecosystem contributed revenue of around CNY11.7bn in 2017, up 12% YoY, mainly as a result of business expansion in Club Med and Atlantis, as the number of Club Med customers continues to grow, while Atlantis Sanya officially opened in 1H18 and is gradually delivering positive contributions. We forecast the happiness ecosystem to achieve a revenue CAGR of 24% in 2017-20E and its revenue contribution to reach 17% by 2020E.

Wealth ecosystem – insurance & finance. In 2017, the revenue from the insurance and finance segment remained flat YoY at CNY28.0bn, as the positive revenue growth for Fosun Insurance Portugal, Peak Reinsurance and Fosun Hani Securities was offset by the impact of the disposal of Ironshore (accounted in 2016 revenue). We estimate the insurance and finance segment will achieve a revenue CAGR of 21% during 2017-20E, driven by stable growth in insurance premiums, and the segment’s revenue contribution to reach 38% by 2020E.

Wealth ecosystem – investment. The revenue from the investment segment rose by 46% YoY and reached CNY4.3bn in 2017, which was mainly due to investment scale expansion. We expect the investment segment to sustain a revenue CAGR of 6% in 2017- 20E, with mild growth in primary market investments and asset management, and its revenue contribution to maintain around 4% by 2020E.

Fosun (656 HK): 5 September 2018

Wealth ecosystem – hive property. The revenue from the hive property segment rose by 49% YoY and reached CNY22.3bn in 2017, mainly as a result of an increase in property area sales at Forte. We expect the revenue for the property segment to decline at a 30% CAGR in 2017-20E, as we expect a sharp fall in transaction volume in the property market and declining project reserves for Forte. Hence, we expect Forte to see a substantial revenue decline in 2019-20E after most of its previous contract sales are booked as revenue in 2018E. We forecast the segment’s revenue contribution to shrink to 6% by 2020E.

Net-profit growth Net-profit growth faster We forecast Fosun’s attributable net profit to expand at an 18% CAGR in 2017-20E and than revenue growth due reach CNY21.7bn in 2020E. Fosun operates various portfolio companies, some of which to the rising contribution contribute profit through other income and gains or through the share of profit of from associate JVs/associates. Hence, its net profit trend may be different from the pre-tax profit or companies in its revenue trend for different segments. portfolio Notably, we expect the health ecosystem’s net profit contribution to rise to 18% in 2020E from 10% in 2017. This is a combined result of the contribution of Fosun’s core assets (such as Fosun Pharma) and associate companies (such as SinoPharm).

Fosun: net profit by business segment Fosun: segment net profit trend (CNYm) (CNYm) 28% 4,000 20% 15,000 13,161 3,500 3,063 8,038 10,268 1,372 3,000 14% 2,558 10,000 2,500 1,099 1,039 3,903 31% 5% 1,737 2,000 1,524 2,104 2,440 10% 1,500 829 792 833 5,000 3,920 1,000 632 4,245 5,218 360 397 500 2,994 2,075 2,171 0 0 Health Happiness Wealth Wealth Wealth 2015 2016 2017 Ecosystem Ecosystem Ecosystem - Ecosystem - Ecosystem - Health Ecosystem Happiness Ecosystem Insurance & Investment Hive Properties Wealth Ecosystem - Insurance & Finance Wealth Ecosystem - Investment Finance 1H17 1H18 Wealth Ecosystem - Hive Properties

Source: Company, Daiwa Source: Company, Daiwa

Fosun: net profit by business segment (2017) Fosun: segment net profit mix movement (2017 vs. 2020E) 100% Wealth Health 10% Ecosystem - Ecosystem 4% 18% Hive Properties 10% Happiness 8% 16% Ecosystem 30% 4% 37% 50% 40% Wealth Wealth Ecosystem - 30% Ecosystem - Insurance & 16% Investment Finance 9% 40% 0% 30% 2017 2020E Health Ecosystem Happiness Ecosystem Wealth Ecosystem - Insurance & Finance Wealth Ecosystem - Investment Wealth Ecosystem - Hive Properties

Source: Company, Daiwa Source: Company, Daiwa forecasts

Fosun (656 HK): 5 September 2018

Fosun: revenue and net profit trends Fosun: net profit breakdown

(CNYbn) (CNYm) 140 18% 30,000 16% 21,744 120 18,390 14% 20,000 100 15,432 12% 13,161 10,268 80 10% 8,038 10,000 60 8% 6% 40 4% 0 20 2% 2015 2016 2017 2018E 2019E 2020E 0 0% Health Ecosystem Happiness Ecosystem Wealth Ecosystem - Insurance & Finance Wealth Ecosystem - Investment 2015 2016 2017 2018E 2019E 2020E Wealth Ecosystem - Hive Properties Revenue Net profit Net margin (RHS)

Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Debt level and capital structure Debt level Financial leverage has Fosun has reduced its financial leverage over the past few years. At end-2017, its net come down in the past gearing ratio had been reduced to 49.7% from 86.0% at end-2013. As at end-2017, its few years and now to a reported net debt (total debt minus cash, bank and term deposits) was CNY67.8bn, while comfortable level unutilised banking facilities amounted to CNY161.7bn. Also, due to the healthier debt structure, the company’s average cost of funding was 4.72% in 2017, 101bp lower than the funding cost in 2013. Based on Fosun’s improved capital structure, Moody’s1 raised its rating to Ba2 Stable from Ba3 Positive in January 2018. As at end-1H18, Fosun maintained a reported net gearing ratio of 53.6%, better than the management’s comfortable range of 55-60%.

We see the current debt level as largely comfortable for Fosun to reach a balance between profit growth and financial risk. We expect its net gearing ratio to stay in a range of 45-60% in 2018E.

Fosun: net debt amount and net gearing ratio (reported) Fosun: net debt over EBITDA and average cost of debt (reported) (CNYbn) (x) 86.0% 5.73% 150 90% 5 5.61% 6% 73.3% 4.97% 68.2% 4.72% 4.47% 120 60.3% 70% 4 3.7 x 5% 53.6% 49.7% 3.0 x 3.1 x 2.8 x 4% 90 50% 3 2.2 x 3% 60 30% 2 2% 30 10% 1 1%

0 (10%) 0 0% 2013 2014 2015 2016 2017 1H18 2013 2014 2015 2016 2017 Net debt Net gearing ratio (RHS) Net debt / EBITDA Average cost of debt (RHS)

Source: Company, Daiwa Source: Company, Daiwa Note: Net gearing = net debt/equity, net debt is calculated as total debt net of cash, bank and term deposits

Funding structure China vs. overseas. Fosun funds around half of its balance sheet from mainland China sources and the other half from overseas sources; as of end-1H18, the respective ratio was 49:51.

Currency mix. Similar to its funding sources, Fosun has around half of its funding in CNY (49.4% at end-1H18). Within the other half, 33.7% was in USD, 13.0% in EUR, 1.7% in JPY and 1.9% in HKD, at end-1H18.

1 This report uses credit ratings assigned by Moody’s, which is not registered with Japan’s Financial Services Agency pursuant to Article 66, Paragraph 27 of the Financial Instruments and Exchange Act.

Fosun (656 HK): 5 September 2018

China onshore vs. offshore: interest-bearing borrowings (end- Currency mix: interest-bearing borrowings (end-1H18) 1H18) HKD JPY Other EUR 1.90% 1.70% 0.30% 13.00%

On-shore Off-shore CNY 49% 51% 49.40%

USD 33.70%

Source: Company Source: Company

Adjusted net asset value (NAV) and BVPS growth BVPS growth. Fosun delivered a 14.3% CAGR in terms of its BVPS in the past decade (over 2007-17), we believe as a result of the execution of its “buy & operate” model and connecting China’s consumer demand with Fosun’s global platform. Going forward, in addition to the above 2 theses, which we expect to remain the pillars in Fosun’s investment strategy, we see rising synergies in a few ecosystems that it is creating, all of which will support Fosun’s sustained growth.

Fosun adopts adjusted Adjusted NAV. In addition to the IFRS-based BVPS, Fosun started disclosing its adjusted NAV to better reflect fair NAV in its 2017 interim results. The adjusted NAV includes the market value of listed market value investments held by the group, the fair value of unlisted investments based on recent transactions or comparable companies’ method minus the group’s net debt.

Peers BVPS growth. During the past decade (2007-17), Fosun posted a high BVPS CAGR of 14.3%, higher than that of a few other companies which are usually viewed as Fosun’s peers. As a reference, Berkshire’s BVPS CAGR over the same period was 10.5%; Swire Pacific’s was 6.5%; while Ping An saw only a 5.7% BVPS CAGR over the same period.

Fosun: book value per share Fosun: Adjusted NAV per share (CNY) (HKD) 14 40 11.76 33.28 12 10.74 35 30.78 CAGR: 14.3% 30.23 30 10 8.80 26.01 25 8 7.14 6.17 20 5.48 6 4.65 4.96 15 3.81 4 3.08 3.09 10 5 2 0 0 End-2016 End-1H17 End-2017 End-1H18 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Company, Daiwa Source: Company, Daiwa Note: Adjusted NAV = market value of listed investments held by the Group + fair value of unlisted investments utilizing recent transactions or comparable companies method – the Group’s net debt

Fosun (656 HK): 5 September 2018

Valuation and risks

We use PER to value Price-to-earnings valuation Fosun since it is not a PER valuation methodology passive investor in its We understand most investors currently use an NAV-based SOTP method to value Fosun. portfolio of companies However, we argue that a PER method is a more reasonable approach for the following reasons:

1) Fosun is not simply a passive investor in its portfolio companies. Fosun “Buys & Operates” its portfolio companies, with the goal of bringing the best out of existing management while also harnessing Fosun’s management on Fosun’s open platform.

2) Fosun’s business model is to match structurally rising consumer demand in China with the global provision of established high-quality brands, products, and services.

3) Fosun’s portfolio companies formulate consumer-related ecosystems which discover and then tap into consumer demand in various scenarios that have been previously neglected. Hence, value is created by bringing these portfolio companies together and managing them holistically.

What are Fosun’s peers? We selected 6 peers to use as a benchmark for Fosun’s PER valuation, and give each company equal weighting. Our chosen peers are Alibaba, Berkshire, Ping An, AIA Group, Swire Pacific (19 HK, not rated) and Citic Group (0267 HK, not rated).

 We select Alibaba as a peer because of its comparability to Fosun on our 3 value propositions, most importantly the “Buy & Operate” model and consumer demand.

 We select Berkshire because of the view in the market that Fosun’s investment strategy is similar to Berkshire’s.

 We select Ping An because it is similar to Fosun in the context of tech-related unicorn investments and it is also a conglomerate.

 We select AIA Group because, like Fosun, it is an insurance conglomerate, and the 2 companies have a similar geographic mix

 We select Swire Pacific and CITIC Group, as these companies are perceived by the market to be typical Hong Kong-listed conglomerate stocks. While Swire mostly operates in Hong Kong (with some China and Europe exposure), and Citic Group mostly in China, Fosun’s operations from a geographic perspective are largely half China and half overseas.

Financial conglomerate companies: valuation comparables Company Ticker Rating Current price Mkt cap PER (x) PBR (x) P/S (x) Lcy (USDbn) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Berkshire BRK/B US NR 210.05 519.9 22.0 21.0 19.4 1.4 1.3 1.2 2.1 2.0 1.9 Alibaba BABA US Buy 170.44 441.8 32.4 30.1 22.4 7.5 6.4 5.1 11.3 7.6 5.5 Ping An 2318 HK Hold 76.80 174.9 12.1 10.0 8.9 2.2 1.9 1.6 1.1 0.9 1.0 AIA 1299 HK Buy 68.00 103.6 19.4 16.1 14.2 2.3 2.1 1.9 2.9 2.5 2.2 CITIC Group 267 HK NR 11.22 41.3 6.5 5.9 5.5 0.6 0.5 0.5 0.7 0.6 0.6 Swire Pacific 19 HK NR 89.85 15.5 21.0 15.0 13.1 0.5 0.5 0.5 1.4 1.4 1.3 Sector average 216 18.9 16.4 13.9 2.4 2.1 1.8 3.2 2.5 2.1

Source: Companies, Bloomberg, Daiwa Note: Bloomberg consensus forecasts for all companies; sector average based on the simple average of peers to avoid distortions due to large differences in market cap among our chosen valuation comparables; prices as of 4 September 2018.

From a financial metrics perspective, the ROE and EPS growth forecasts for Fosun and our chosen peer group are broadly comparable and hence justify our use of the peer group as a valuation benchmark. Based on Bloomberg consensus forecasts, the average ROE

Fosun (656 HK): 5 September 2018

for the peer group for 2018-20E is 11.8%. We forecast Fosun to have an average ROE of 14.5% for the same period. The Bloomberg consensus calls for the peer group to have an average EPS CAGR of 18.6% for 2017-20E, while we look for Fosun to post an 18.0% EPS CAGR for the same period.

Target PER of 10x. To avoid distortion arising from the large differences in the companies’ market caps, we take the simple average PER of the peer group (17.6x for average 2018- 19E), as our reference for Fosun’s valuation. Taking into consideration Fosun’s relatively small market cap and low stock liquidity, we apply a steep discount to arrive at a target PER of 10x for Fosun.

We use average 2018-19E EPS as our valuation basis. Applying our 10x target PER, we set our 12-month PER-based target price at HKD22.

Historical valuations 2019E PER of 6x is lower Fosun is currently trading at around a 6x 2019E PER on our forecasts, lower than its past- than the stock’s trailing 5-year average 12-month forward PER of 9x. The stock has traded in a narrow trading 5-year average of 9x range of 7-11x in terms of one-year forward PER over the past 5 years.

Fosun: 12-month rolling forward PER and share price Rolling PER (x) Price (HKD) 18 25 16 14 20 12 15 10 8 10 6

4 5 2

0 -

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18

Dec-09 Aug-18 Dec-07 Aug-08 Dec-08 Aug-09 Aug-10 Dec-10 Aug-11 Dec-11 Aug-12 Dec-12 Aug-13 Dec-13 Aug-14 Dec-14 Aug-15 Dec-15 Aug-16 Dec-16 Aug-17 Dec-17

Rolling PER Average PER +1SD -1SD Price (RHS)

Source: Companies, Bloomberg, Daiwa

Fosun: 12-month rolling forward PBR and share price

Rolling PBR (x) Price (HKD) 2.5 25

2.0 20

1.5 15

1.0 10

0.5 5

0.0 -

Apr-17 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-18

Dec-08 Aug-17 Dec-07 Aug-08 Aug-09 Dec-09 Aug-10 Dec-10 Aug-11 Dec-11 Aug-12 Dec-12 Aug-13 Dec-13 Aug-14 Dec-14 Aug-15 Dec-15 Aug-16 Dec-16 Dec-17 Aug-18 Rolling PBR Average PBR +1SD -1SD Price (RHS)

Source: Companies, Bloomberg, Daiwa

Fosun (656 HK): 5 September 2018

Key risks Risk 1: execution risk on its “open platform” Fosun’s “open platform” model in making M&As and generating operational synergies may expose it to execution risk. Because the management and operations of its portfolio companies are loosely tied together, portfolio companies may sometimes look more like business partners than subsidiaries for Fosun. Hence, there is a risk that ground-level execution may not be tightly managed by the group.

Risk 2: capital-market volatility Market volatility could give rise to difficulties in bringing previous investments to fair market value or exiting these investments. Also, capital-market corrections would negatively affect not only the investment income from the wealth ecosystem but also adjusted net asset value.

Risk 3: anti-globalisation sentiment and policies Potential anti-globalisation sentiment in some countries could ultimately lead to a tightening of policies on cross-border M&As, financial investments, or even cross-border purchases of consumer goods.

Fosun (656 HK): 5 September 2018

Appendix Company background Founded in 1992 and headquartered in Shanghai, Fosun Limited is a family-focused multinational conglomerate consisting of a large number of portfolio companies engaged in multiple business lines. The company started out in information technology consulting and logistics management of technology products. In 1994, Fosun entered the fields of property development (Forte Group) and pharmaceuticals (Fosun Pharma). During the period 1994- 2007, the company gradually extended its businesses into steel, gold mining, retail business and financial services. The company was listed on the main board of the Hong Kong Stock Exchange on 16 July 2007.

Fosun currently operates various portfolio companies in different segments, and has sought to build customer-to-maker (C2M) ecosystems in health, happiness and wealth. Of note, Fosun’s book value per share saw a 21% CAGR over 2012-17 and stood at around HKD14.07 as at end-2017. Also, Fosun disclosed an adjusted book value (adjusted NAV) of HKD33.28 per share as at end-2017, an increase of 28% from HKD26.01 per share as at end-2016. Adjusted NAV includes the market value of listed investments held by the Group and the fair value of unlisted investments with reference to recent transactions or comparable companies, minus the Group’s net debt.

Fosun: headquarters Fosun: attributable net profit breakdown by business lines (2017)

Wealth Health Happiness Ecosystem - Ecosystem Ecosystem Hive Properties 10% 4% 16%

Wealth Ecosystem - Insurance & Finance 30% Wealth Ecosystem - Investment 40%

Source: Company Source: Company, Daiwa

The Health Ecosystem of Fosun covers pharmaceutical manufacturing and R&D (Fosun Pharma, Sinopharm and Gland Pharma), medical services and healthcare management (Fosun United Health Insurance, Chancheng Hospital and Luz Saúde), and health products (Silver Cross, Sanyuan Foods and St Hubert). In 2017, the Health Ecosystem’s net profit, accounting for 10.4% of total profit attributable to shareholders, expanded by 32.1% YoY to CNY1,372m.

The Happiness Ecosystem of Fosun involves sectors such as tourism and leisure (FOLIDAY, Club Med, and Atlantis), fashion (Lanvin, Tom Tailor and Folli Follie), and consumer & lifestyle (Yuyuan, Tsingtao Brewery and AHAVA). In 2017, the Happiness Ecosystem realised net profit of around CNY498m, up 6.1% YoY, and contributed 3.8% of total profit attributable to shareholders.

The Wealth Ecosystem of Fosun is divided into 3 major sub-segments: Insurance and Finance (Fosun Insurance Portugal, Fosun Hani Securities and Mybank), Investment (Fosun Capital, Cainiao and Hainan Mining) and Hive Property (Forte, 28 Liberty and Bund Finance Center). In terms of net profit, insurance and finance accounted for CNY3,903m, Investment contributed CNY5,218m and Hive Property delivered CNY2,171m in 2017. These figures represent YoY growth rates of 59.9%, 22.9% and 4.6%, respectively.

Fosun (656 HK): 5 September 2018

Fosun: global investment portfolio (End-1H18) Source: Company Notes: 1) The chart illustrates key investments of Fosun Group as at end-1H18. The equity percentage represents the direct shareholdings held by the group, associates, JVs and funds managed by the group at end-1H18 while those marked in the dotted boxes are held by Fosun Pharma. The company marked in the grey shadow box is the project remained to be completed at end-1H18.; 2) Its accounting items are booked under “Insurance and Finance” segment; 3) The company and Fidelidade, a subsidiary of the group held 49.00% and 49.79% equity interest in Luz Saúde respectively. Therefore, the group held 91.32% effective equity interest in Luz Saúde; 4) Fosun through its wholly-owned subsidiary, and Fosun Chuanghong, a fund under management of the group held 16.67% and 3.78% equity interest, respectively, in Sanyuan Foods. The group held Fosun Chuanghong general partnership interest and limited partnership interest of totally 37.25%, thus, the group held Sanyuan Foods 18.08% effective equity interest. 5) St Hubert was held as to 98.12% by an associate (the Group held 51% equity interest in such associate). 6) Club Med is indirectly held by Fosun Tourism Group, a subsidiary which the Group held as to 99.10%. Club Med is held as to 90.25% by a wholly-owned subsidiary of Fosun Tourism Group and as to 1.58% by a subsidiary (Fosun Tourism Group held 50.62% equity interest in such subsidiary). Therefore, the Group held 90.23% effective equity interest in Club Med. 7) The Group through its subsidiaries, Fosun Tourism Group and Fidelidade, held 5.375% and 7.225% equity interest in Thomas Cook, respectively. Therefore, the Group held 11.47% effective equity interest in Thomas Cook. 8) Tom Tailor was held 14.33% by the Company, 10.49% by Fidelidade, a subsidiary of the Group, and 4.07% by a company in which Fidelidade held 51% equity interest. Therefore, the Group held 25.01% effective equity interest in Tom Tailor. 9) The Group held 43.50% equity interest in Caruso. The joint venture established by the Group and Pramerica-Fosun China Opportunity Fund managed by the Group held 30.40% equity interest in Caruso (the Group held 17.00% equity interest in the joint venture). Therefore, the Group held 48.67% effective equity interest in Caruso. 10) The joint venture established by the Group and Pramerica-Fosun China Opportunity Fund managed by the Group held 70% equity interest in St. John (the Group held 19.70% equity interest in the joint venture). Therefore, the Group held 13.79% effective equity interest in St. John.

11) Yuyuan completed the asset reorganization in July 2018 and the Group made further acquisition of its shares on the secondary market. Thus, as of the date of this announcement, the Group held 68.52% equity interest in Yuyuan. 12) Tsingtao Brewery was held as to 11.66% by two wholly-owned subsidiaries of the Group, as to 2.55% and 0.53% by Fidelidade and Peak Reinsurance (both are subsidiaries of the Group) respectively, and as to 3.25% by a fund managed by the Group. Therefore the Group held 14.29% effective equity interest in Tsingtao Brewery. 13) The Group through its subsidiary held 100% equity interest in AHAVA. Such subsidiary was owned 84.26% and 15.28% by the Group and Yuyuan, the Group's associate respectively. Therefore, the Group held 84.26% effective interest in AHAVA 14) The Group signed an agreement in July 2018 to acquire 69.18% equity interest in Baihe Jiayuan and the transaction was completed as of the date of this announcement. 15) The Group held 84.9884%, 80% and 80% equity interest in Fidelidade, Multicare and Fidelidade Assistência through its wholly-owned subsidiary. 16) Nanjing Nangang, the company’s JV, held an 84.50% equity interest in Koller. 17) The Group and Nanjing Nangang jointly purchased a 100% equity interest in Besino Environment, which is 50% held by the Group.

Fosun (656 HK): 5 September 2018

Fosun: global footprint

Source: Company Note: 1. Diagram shows selection of Fosun portfolio companies, as of end-1H18. 2. Transaction not yet completed 3. In July 2018, it was fully disposed of the remaining shares held by the Group in Focus Media. The transaction is not yet completed

Fosun (656 HK): 5 September 2018

Fosun: capital allocation strategy

Source: Company Note: The chart illustrates capital allocation strategy of Fosun Group as at end-1H18.

Fosun (656 HK): 5 September 2018

Fosun: C2M ecosystem outlook

Source: Company Note: The chart illustrates key C2M ecosystem components of Fosun Group as at end-2017. 1) The transaction on Lanvin was completed in April 2018.

Valuation reference – an adjusted net asset value (NAV) perspective Following its 1H17 results, Fosun began disclosing its adjusted net asset value (“Adjusted NAV”) in order to better reflect the value of its assets. Its adjusted NAV is calculated as the market value of listed investments held by Fosun and the fair value of unlisted investments benchmarked against recent transactions or comparable companies, minus Fosun’s net debt. In our view, this figure is a good indicator of the potential market value of portfolio companies operated by Fosun, since it takes into account the theoretical market value of unlisted investments.

We use the Adjusted NAV figure as a reference check for our valuation of the company. As at end-1H18, the Adjusted NAV per share was HKD30.78. The 7.5% HoH decline in its Adjusted NAV was mainly a result of declines in the market value of its listed investments.

Fosun: adjusted NAV per share (HKD) 40 33.28 35 30.23 30.78 30 26.01 25 20 15 10 5 0 End-2016 End-1H17 End-2017 End-1H18 Source: Company, Daiwa Note: Adjusted NAV includes the market value of listed investments held by the Group and fair value of unlisted investments utilizing recent transactions or comparable companies minus the group’s net debt.

Fosun (656 HK): 5 September 2018

Shareholder structure Major shareholders. Fosun Limited was founded by Mr Guo Guangchang, Mr Liang Xinjun, Mr Wang Qunbin and Mr Fan Wei in 1992. Initially, they respectively held 58%, 22%, 10% and 10% equity interests in Fosun. As at end-2017, Mr Guo Guangchang, Mr Liang Xinjun and Mr Wang Qunbin respectively held 64.45%, 24.44% and 11.11% stakes in Fosun Holdings, the beneficial owner of all the issued shares in Fosun Holdings, while Fosun Holdings held 71.80% of Fosun Limited. As Mr Guo Guangchang is the sole director of Fosun Holdings and Fosun Holdings, and held 64.45% of Fosun Holdings at the end- 2017. According to Bloomberg, he is deemed to own an effective 71.80% stake in Fosun Limited in the form of corporate interests as of 31 August 2018.

According to Bloomberg, besides the largest shareholder Fosun Holdings, BlackRock and Vanguard respectively held 1.08% and 0.92% stakes in Fosun as of 31 August 2018.

Stock repurchases. In 2017, Fosun repurchased a total of 34,765,500 shares on the Hong Kong Stock Exchange at an average price of around HKD11.95 per share.

The table and chart below illustrate Fosun’s shareholding structure and major directors/chief executive’s shareholdings as at end-2017.

Fosun: shareholding structure

Liang Xinjun Guo Guangchang Wang Qunbin

24.44% 64.45% 11.11%

Fosun International Holdings

100.00%

BlackRock Fosun Holdings Vanguard

1.08% 71.80% 0.92%

Fosun International Limited (0656 HK)

Source: Company, Bloomberg, Daiwa Note: as of 31 August 2018

Fosun (656 HK): 5 September 2018

Fosun: major directors/chief executive’s shareholdings Name of Director Class Number Type Percentage /chief executive of shares of shares of interest Guo Guangchang Ordinary 6,155,972,473(1) Corporate 71.68% Chen Qiyu Ordinary 16,328,000 Individual 0.19% Xu Xiaoliang Ordinary 13,895,000 Individual 0.16% Qin Xuetang Ordinary 15,147,640 Individual 0.18% Wang Can Ordinary 9,415,000 Individual 0.11% Kang Lan Ordinary 9,460,000 Individual 0.11% Gong Ping Ordinary 9,360,000 Individual 0.11% Zhang Shengman Ordinary 530,000 Individual 0.01% Zhang Huaqiao Ordinary 800,000 Individual 0.00% David T. Zhang Ordinary 800,000 Individual 0.00% Yang Chao Ordinary 70,000 Individual 0.00% Lee Kai-Fu Ordinary 35,000 Individual 0.00%

Source: Company, Daiwa Note: data as of end-2017; (1) Pursuant to Division 7 of Part XV of the SFO, 6,155,972,473 shares held by Mr Guo Guangchang are deemed corporate interests held through Fosun Holdings and Fosun Holdings.

Senior management profile Mr Guo Guangchang, Chairman of the Board and Executive Director Mr Guo is the founder of the Group and has been a director of various group companies since 1994. As at end-2017, he was also a non-executive director of Fosun Pharma, which is listed on the Hong Kong Stock Exchange (HKEx) and the Shanghai Stock Exchange (SSE). He is also a director of Fosun Holdings and Fosun International Holdings. Mr Guo was a deputy to the 10th and 11th National People’s Congress of the PRC and a member of the 9th and 12th National Committee of the Chinese People’s Political Consultative Conference. Mr Guo was awarded a “Lifetime Achievement Award” at the 16th CNBC Asia Business Leaders Award Ceremony in 2017. Mr Guo received a bachelor’s degree in philosophy in 1989 and an MBA in 1999, both from Fudan University.

Mr Wang Qunbin, Executive Director and CEO Mr Wang is the founder of the Group and has been a director of various group companies since 1994. As at end-2017, he was also a director of Yuyuan (listed on the SSE) and non- executive director of Sinopharm (listed on the HKEx) and Fosun Pharma (listed on the HKEx and the SSE). Mr Wang was a director of Henan Lingrui Pharmaceutical Co., Ltd. (listed on the SSE with stock code 600285). Mr Wang was listed in the “Hot 100 List in 2016” by the American insurance magazine, Insurance Business. Mr Wang received a bachelor’s degree in genetic engineering from Fudan University in 1991.

Mr Chen Qiyu, Executive Director and Co-President Mr Chen joined the Group in 1994. As at end-2017, he was an executive-director and chairman of Fosun Pharma (listed on HKEx and the SSE), a non-executive director and vice chairman of Sinopharm (listed on HKEx), a director of Zhejiang D.A. Diagnostic Company Limited (listed on the Growth Enterprise Market Board of the Shenzhen Stock Exchange with stock code 300244), Sanyuan Foods (listed on the SSE), and various group companies. As at end-2017, Mr Chen is the chairman of China Medical Pharmaceutical Material Association, vice-president of China Pharmaceutical Innovation and Research Development Association, and chairman of the Shanghai Biopharmaceutical Industry Association. Mr Chen received a bachelor’s degree in genetics from Fudan University in 1993 and an EMBA degree from China Europe International Business School in 2005.

Mr Xu Xiaoliang, Executive Director and Co-President Mr Xu joined the Group in 1998. As at end-2017, he was also the chairman of Yuyuan (listed on the SSE), a non-executive director of Zhaojin Mining (listed on the Hong Kong Stock Exchange), a director of Resource Property (listed on the NEEQ) and Shanghai Foyo Culture & Entertainment Co., Ltd. (listed on the NEEQ with stock code 831472), and director of various group companies. As at end-2017, Mr Xu is a deputy to the 15th

Fosun (656 HK): 5 September 2018

Shanghai Municipal People’s Congress and co-chairman of the Real Estate Association of The Zhejiang Chamber of Commerce. Mr Xu graduated from the Innova Education School of Singapore with a diploma in 1995 and received a master’s degree in business administration from the East China Normal University in 2002.

Mr Qin Xuetang, Executive Director and Senior Vice President Mr Qin joined the Group in 1995. Since joining, Mr Qin has been in charge of the legal and internal control functions of the company, and has expertise in M&A and corporate governance. Mr Qin received a bachelor’s degree in law in 1985 from the Southwest University of Political Science and Law and was admitted to practice law in the PRC in 1990. Prior to joining the Group, Mr Qin worked in the Law School of Fudan University.

Mr Wang Can, Executive Director, Senior Vice President and CFO Mr Wang joined the Group in 2012. As at end-2017, he was also the general manager of Investment Management Support Center, the co-director of Fosun Technology Innovation Center, the non-executive director of Fosun Pharma (listed on the HKEx and the SSE), the director of Shanghai Ganglian E-Commence Holdings Co., Ltd. (listed on the Shenzhen Stock Exchange with stock code 300226) and the director of various companies within the Group. Mr Wang is a non-practicing member of Chinese Institute of Certified Public Accountants (CICPA) and a member of The Association of International Accountants (AIA). Mr Wang graduated from Anhui University in 1997 and received an EMBA degree from China Europe International Business School in 2014.

Ms Kang Lan, Executive Director, Senior Vice President Ms Kang joined the Group in 2010. As at end-2017, she was also the Chief Human Resources Officer of the company and the President of Fosun Insurance segment, the non-executive director of Fosun Pharma (listed on the HKEx and the SSE), chairperson of AmeriTrust and director of various insurance companies and other companies within the Group. Ms Kang received her bachelor’s degree in biological sciences and biotechnology from Zhejiang University in 1991, master’s degree in biochemistry from Tulane University in the United States in 1995, and MBA from the Wharton School of the University of Pennsylvania in 2002.

Mr Gong Ping, Executive Director, Senior Vice President Mr Gong joined the Group in 2011. As at end-2017, he was also CEO of Fosun Property Holdings, chairman of Paris Reality Fund SA (listed on the Euronext Paris with stock code PAR), vice chairman of Yuyuan (listed on the SSE), a non-executive director of Shanghai Zendai (listed on the HKEx), a director of Resource Property (listed on the NEEQ), and a director of various companies within the Group. Mr Gong graduated from Fudan University in 1998 with a bachelor’s degree in international finance, and then obtained his master’s degree in finance from Fudan University in 2005. Mr Gong received his MBA from the International Institute for Management Development (IMD) in Lausanne, Switzerland in 2008.

Fosun (656 HK): 5 September 2018

Explanatory Document of Unregistered Credit Ratings

In order to ensure the fairness and transparency in the markets, Credit Rating Agencies became subject to the Credit Rating Agencies’ registration system based on the Financial Instruments and Exchange Act. In accordance with this Act, in soliciting customers, Financial Instruments Business Operators, etc. shall not use the credit ratings provided by unregistered Credit Rating Agencies without informing customers of the fact that those Credit Rating Agencies are not registered, and shall also inform customers of the significance and limitations of credit ratings, etc. ■ The Significance of Registration Registered Credit Rating Agencies are subject to the following regulations: 1) Duty of good faith. 2) Establishment of control systems (fairness of the rating process, and prevention of conflicts of interest, etc.). 3) Prohibition of the ratings in cases where Credit Rating Agencies have a close relationship with the issuers of the financial instruments to be rated, etc. 4) Duty to disclose information (preparation and publication of rating policies, etc. and public disclosure of explanatory documents). In addition to the above, Registered Credit Rating Agencies are subject to the supervision of the Financial Services Agency (“FSA”), and as such may be ordered to produce reports, be subject to on-site inspection, and be ordered to improve business operations, whereas unregistered Credit Rating Agencies are free from such regulations and supervision. ■ Credit Rating Agencies [Standard & Poor’s] The Name of the Credit Rating Agencies group, etc The name of the Credit Rating Agencies group: S&P Global Ratings (“Standard & Poor’s”) The name and registration number of the Registered Credit Rating Agency in the group: S&P Global Ratings Japan Inc. (FSA commissioner (Rating) No.5) How to acquire information related to an outline of the rating policies and methods adopted by the person who determines Credit Ratings The information is posted under “Unregistered Rating Information” (http://www.standardandpoors.co.jp/unregistered) in the “Library and Regulations” section on the website of S&P Global Ratings Japan Inc. (http://www.standardandpoors.co.jp) Assumptions, Significance and Limitations of Credit Ratings Credit ratings assigned by Standard & Poor’s are statements of opinion on the future credit quality of specific issuers or issues as of the date they are expressed and they are not indexes which show the probability of the occurrence of the failure to pay by the issuer or a specific debt and do not guarantee creditworthiness. Credit ratings are not a recommendation to purchase, sell or hold any securities, or a statement of market liquidity or prices in the secondary market of any issues. Credit ratings may change depending on various factors, including issuers’ performance, changes in external environment, performance of underlying assets, creditworthiness of counterparties and others. Standard & Poor’s conducts rating analysis based on information it believes to be provided by the reliable source and assigns credit ratings only when it believes there is enough information in terms of quality and quantity to make a conclusion. However, Standard & Poor’s does not perform an audit, due diligence or independent verification of any information it receives from the issuer or a third party, or guarantee its accuracy, completeness or timeliness of the results by using the information. Moreover, it needs to be noted that it may incur a potential risk due to the limitation of the historical data that are available for use depending on the rating. This information is based on information Daiwa Securities Co. Ltd. has received from sources it believes to be reliable as of March 7th, 2017, but it does not guarantee accuracy or completeness of this information. For details, please refer to the website of S&P Global Ratings Japan Inc. (http://www.standardandpoors.co.jp) [Moody’s] The Name of the Credit Rating Agencies Group, etc The name of the Credit Rating Agencies group: Moody’s Investors Service, Inc. (“MIS”) The name and registration number of the Registered Credit Rating Agency in the group: Moody’s Japan K.K. (FSA commissioner (Rating) No.2) How to acquire information related to an outline of the rating policies and methods adopted by the person who determines Credit Ratings The information is posted under “Unregistered Rating explanation” in the section on “The use of Ratings of Unregistered Agencies” on the website of Moody’s Japan K.K. (The website can be viewed after clicking on “Credit Rating Business” on the Japanese version of Moody’s website (https://www.moodys.com/pages/default_ja.aspx) Assumptions, Significance and Limitations of Credit Ratings Credit ratings are Moody’s Investors Service, Inc.’s (“MIS”) current opinions of the relative future credit risk of entities, credit commitments, or debt or debt-like securities. MIS defines credit risk as the risk that an entity may not meet its contractual, financial obligations as they come due and any estimated financial loss in the event of default. Credit ratings do not address any other risk, including but not limited to: liquidity risk, market value risk, or price volatility. Credit ratings do not constitute investment or financial advice, and credit ratings are not recommendations to purchase, sell, or hold particular securities. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such rating or other opinion or information, is given or made by MIS in any form or manner whatsoever. Based on the information received from issuers or from public sources, the credit risks of the issuers or obligations are assessed. MIS adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MIS considers to be reliable. However, MIS is not an auditor and cannot in every instance independently verify or validate information received in the rating process. This information is based on information Daiwa Securities Co. Ltd. has received from sources it believes to be reliable as of May 13th, 2016, but it does not guarantee accuracy or completeness of this information. For details, please refer to the website of Moody’s Japan K.K. (https://www.moodys.com/pages/default_ja.aspx) [Fitch] The Name of the Credit Rating Agencies group, etc The name of the Credit Rating Agencies group: Fitch Ratings (“Fitch”) The name and registration number of the Registered Credit Rating Agency in the group: Fitch Ratings Japan Limited (FSA commissioner (Rating) No.7) How to acquire information related to an outline of the rating policies and methods adopted by the person who determines Credit Ratings The information is posted under “Outline of Rating Policies” in the section of “Regulatory Affairs” on the website of Fitch Ratings Japan Limited (https://www.fitchratings.co.jp/web/) Assumptions, Significance and Limitations of Credit Ratings Ratings assigned by Fitch are opinions based on established criteria and methodologies. Ratings are not facts, and therefore cannot be described as being “accurate” or “inaccurate”. Credit ratings do not directly address any risk other than credit risk. Credit ratings do not comment on the adequacy of market price or market liquidity for rated instruments. Ratings are relative measures of risk; as a result, the assignment of ratings in the same category to entities and obligations may not fully reflect small differences in the degrees of risk. Credit ratings, as opinions on relative ranking of vulnerability to default, do not imply or convey a specific statistical probability of default. In issuing and maintaining its ratings, Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The assignment of a rating to any issuer or any security should not be viewed as a guarantee of the accuracy, completeness, or timeliness of the information relied on in connection with the rating or the results obtained from the use of such information. If any such information should turn out to contain misrepresentations or to be otherwise misleading, the rating associated with that information may not be appropriate. Despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. For the details of assumption, purpose and restriction of credit ratings, please refer to “Definitions of ratings and other forms of opinion” on the website of Fitch Rating Japan Limited. This information is based on information Daiwa Securities Co. Ltd. has received from sources it believes to be reliable as of May 13th, 2016, but it does not guarantee accuracy or completeness of this information. For details, please refer to the website of Fitch Rating Japan Limited (https://www.fitchratings.co.jp/web/) Apr 2017

Fosun (656 HK): 5 September 2018

Daiwa’s Asia Pacific Research Directory

HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Jiro IOKIBE (852) 2773 8702 [email protected] Shipbuilding; Machinery Co-head of Asia Pacific Research Mike OH (82) 2 787 9179 [email protected] John HETHERINGTON (852) 2773 8787 [email protected] Banking; Capital Goods (Construction and Defence); Utilities; Steel Co-head of Asia Pacific Research Josh RHEE (82) 2 787 9124 [email protected] Craig CORK (852) 2848 4463 [email protected] Chemicals Regional Head of Asia Pacific Product Management Iris PARK (82) 2 787 9165 [email protected] Paul M. KITNEY (852) 2848 4947 [email protected] Consumer/Retail Chief Strategist for Asia Pacific; Strategy (Regional) SK KIM (82) 2 787 9173 [email protected] Kevin LAI (852) 2848 4926 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Chief Economist for Asia ex-Japan; Macro Economics (Regional) Henny JUNG (82) 2 787 9182 henny.jung @kr.daiwacm.com Olivia XIA (852) 2773 8736 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware (Small/Mid Cap) Macro Economics (Regional/China) Thomas Y KWON (82) 2 787 9181 [email protected] Kelvin LAU (852) 2848 4467 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games Head of Automobiles; Transportation and Industrial (Hong Kong/China) Fiona LIANG (852) 2532 4341 [email protected] TAIWAN Industrial (Hong Kong/China) Rick HSU (886) 2 8758 6261 [email protected] Jay LU (852) 2848 4970 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design (Regional) Automobiles and Components (Hong Kong/China) Nora HOU (886) 2 8758 6249 [email protected] Leon QI (852) 2532 4381 [email protected] Banking; Diversified financials; Insurance Regional Head of Financials; Banking; Diversified financials; Insurance (Hong Kong/China) Steven TSENG (886) 2 8758 6252 [email protected] Anson CHAN (852) 2532 4350 [email protected] IT/Technology Hardware (Automation & PC Hardware) Consumer (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] Adrian CHAN (852) 2848 4427 [email protected] IT/Technology Hardware (Handsets and Components) Consumer (Hong Kong/China) Helen CHIEN (886) 2 8758 6254 [email protected] Andrew CHUNG (852) 2773 8529 [email protected] Small/Mid Cap Head of Gaming (Hong Kong/China) John CHOI (852) 2773 8730 [email protected] INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Head of India Research; Strategy; Banking/Finance Carlton LAI (852) 2532 4349 [email protected] Saurabh MEHTA (91) 22 6622 1009 [email protected] Small/Mid Cap (Hong Kong/China) Capital Goods; Utilities Dennis IP (852) 2848 4068 [email protected]

Regional Head of Power, Utilities, Renewable and Environment (PURE); PURE (Hong Kong/China) SINGAPORE Don LAU (852) 2848 4469 [email protected] Ramakrishna MARUVADA (65) 6228 6742 [email protected] Power, Utilities, Renewable and Environment (PURE) – Utilities (Hong Kong) Head of Singapore Research; Telecommunications (China/ASEAN/India) Anna LU (852) 2848 4465 [email protected] David LUM (65) 6228 6740 [email protected] Power, Utilities, Renewable and Environment (PURE) – Nuclear (China) Banking; Property and REITs Jonas KAN (852) 2848 4439 [email protected] Royston TAN (65) 6228 6745 [email protected] Head of Hong Kong and China Property Oil and Gas; Capital Goods Cynthia CHAN (852) 2773 8243 [email protected] Jame OSMAN (65) 6228 6744 [email protected] Property (China) Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore) Bryan CHIK (852) 2773 8741 [email protected] Custom Products Group JAPAN Selwyn CHENG (852) 2773 8716 [email protected] Yukino YAMADA (81) 3 5555 7295 [email protected] Strategy (Regional) Custom Products Group

PHILIPPINES Renzo CANDANO (63) 2 737 3022 [email protected] Consumer Micaela ABAQUITA (63) 2 737 3021 [email protected] Property Gregg ILAG (63) 2 737 3023 [email protected] Utilities; Energy

Fosun (656 HK): 5 September 2018

Daiwa’s Offices Office / Branch / Affiliate Address Tel Fax DAIWA SECURITIES GROUP INC HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661 Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726 Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129 Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

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DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

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Fosun (656 HK): 5 September 2018

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United Kingdom

Fosun (656 HK): 5 September 2018

This research report is produced by Daiwa Securities Co. Ltd. and/or its affiliates and is distributed in the European Union, Iceland, Liechtenstein, Norway and Switzerland. Daiwa Capital Markets Europe Limited is authorised and regulated by The Financial Conduct Authority (“FCA”) and is a member of the London Stock Exchange and Eurex. This publication is intended for investors who are not Retail Clients in the United Kingdom within the meaning of the Rules of the FCA and should not therefore be distributed to such Retail Clients in the United Kingdom. Should you enter into investment business with Daiwa Capital Markets Europe’s affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

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Research Analyst Conflicts For updates on “Research Analyst Conflicts” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions.

Research Analyst Certification For updates on “Research Analyst Certification” and “Rating System” please visit BlueMatrix disclosure link at https://daiwa3.bluematrix.com/sellside/Disclosures.action. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analyst is named on the report); and no part of the compensation of such analyst (or no part of the compensation of the firm if no individual analyst is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.

The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.

Disclosure of investment ratings Rating Percentage of total Buy* 70.4% Hold** 21.1% Sell*** 8.5% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 June 2018. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.

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