China’s Fosun ‘proactively embracing a mobile internet strategy’

Sally White takes a closer look at moves by a low profile Chinese player to enter western travel markets

Ah, a Chinese Warren Buffett! Western markets were quick to pick up the analogy when Chinese conglomerate Fosun International’s founder and chair Guo Guangchang sprang into the spotlight a few days ago (he emulates the Buffett strategy of funding acquisitions from insurance subsidiary cash flows). Less notice was taken of his un-Buffett focus on e-commerce, owning at least one big local travel brand.

The Fosun conglomerate has come out of the Chinese shadows this year with successful tilts at no less than two big western travel names. In February it led a group of investors to wrestle Club Med away from rival bidders after a two-year battle, pricing the French group at $1.12bn. Next came the 5% stake (soon to be upped to 10%) in Thomas Cook, for £91m.

Descriptions of Fosun, worth around $11bn, take no less than a few paragraphs. The short version refers to four sectors - industrial operations, investment, asset management and insurance. The range is from those insurance operations (a third of its assets) to banks, mining, real estate, iron and steel to medical care, hotels, media, entertainment, retail, leisure and a few more! Geographically it extends from China to Portugal, Greece, New York, Malaysia, France and now the UK.

Share-price-wise it’s equally impressive – up 36% over the last year to HK$12.64. In the last full year reported (2013) it increased net income by 49% to HK$5.5bn on revenues flat HK$52bn. Sales are forecast to jump by around $10bn in 2014 and 2015, with net income up around HK$0.5bn and then HK$1bn. No wonder Fosun’s major shareholders are the Western investment heavy-weights - even if the complexity makes it an analyst’s nightmare!

Dealing in those sort of numbers, it may seem a bit surprising that Guo Guangchang and his team should bother with travel. Except that even in 2013 (last full year out from Phocuswright) China's online travel gross bookings reached US$18.2 billion. And next year the online travel market will top US$37 bn.

The brand in the Fosun travel portfolio is Lailaihui.com which focuses on outbound tourism routes. And the numbers - 100 million outbound trips were made in 2014, according to the China National Tourist Administration (CNTA). It adds that this figure could reach 1.4 bn by 2030 with a spend of US$1.8 trn. Fosun itself gives a value for total Chinese outbound travel of US$129bn in 2013 with a probable rise of 17% last year.

Embracing mobile

Fosun’s own marketing broadcasts that it is proactively implementing its ‘Embracing the Mobile Internet Strategy’. Yet more paragraphs are necessary to list all its holdings, but they range from medical to games, education, clothing and the growing travel section. These are backed up by companies ancillary to the internet, including distribution warehousing, freight express, smart logistics systems and now restaurants and hotels.

Watching Fosun’s travel market strategy will be interesting. Thomas Cook CEO Peter Fankhauser gave some clues. “Thomas Cook and Fosun will work together to capitalise on the Chinese domestic and international tourism market which is expanding rapidly as the middle classes in the world’s second-largest economy swell. The two companies also plan to jointly develop a hotel portfolio.”

Collaboration will also extend to Club Med.

So, who is Guo Guangchang? He is among China’s very richest, with Bloomberg putting his wealth at getting on for US$6bn. A classic entrepreneur, he funded himself through university selling bread (according to Bloomberg.) Then in 1992 he “... got together a few friends, some of us graduated, some not, and we decided to take the plunge”.

They started with 38,000 Yuan of their own. Fosun, whose Chinese name Fuxing means “stars from Fudan University,” soon got a break making 100 million Yuan from a diagnostic kit for hepatitis antibodies. Next big step came with Chinese privatisation of state-owned companies and they invested in a jeweller and department-store owned by the city government. Then came steel and so it went on. And they took Buffett’s tactics as their guide.

Now the market is watching for another move in the travel market to build in the sector in its classic style. Those Chinese travel numbers look irresistible. So do the gains from following Fosun – Thomas Cook shares rose 24% on the news of Fosun’s stake to 150p!

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