1H22 results miss our expectation
　　Fosun International announced that revenue rose 18% YoY in 1H22 to Rmb82.9bn; operating profit rose 35.5% YoY to Rmb2.33bn; and attributable net profit fell 33% YoY to Rmb2.70bn, missing our forecasts mainly due to fair value losses of financial assets held by Fosun Pharma and by the firm’s insurance segment.
　　Trends to watch
　　Health segment: Revenue grew steadily; non-recurring losses dragged earnings. Revenue in the health segment rose 21% YoY in 1H22 to Rmb23.4bn, contributing 28% of total revenue. Earnings fell 76% YoY to Rmb0.30bn, representing 11% of the firm’s total earnings.
　　Revenue and earnings at Fosun Pharma rose 26% YoY to Rmb21.3bn and fell 38% YoY to Rmb1.5bn mainly due to fair value loss due to changes in the share price of BNTX and a 19% YoY increase in its recurring net profit.
　　1. Pharmaceutical manufacturing: Revenue from the pharmaceutical manufacturing segment grew 17% YoY to Rmb14.3bn. Revenue from new and recently launched products accounted for over 25% of the revenue from the pharmaceutical manufacturing business.
　　2. Medical devices and medical diagnosis: In 1H22, revenue rose 42% YoY (66% on the same basis) to Rmb4.04bn, mainly driven by strong business growth of Sisram Med, and contribution from sales of COVID-19 antigen test kits and anti-pandemic materials.
　　3. Healthcare services: In 1H22, revenue from the healthcare service segment rose 58% YoY (38% on the same basis) to Rmb2.9bn mainly thanks to growth of online business and revenue recovery of hospitals. However, the segment suffered a loss of Rmb442mn primarily due to R&D investment and the COVID-19 pandemic.
　　Happiness segment: Segment loss narrowed significantly driven by recovery in earnings of Fosun Tourism. In 1H22, revenue from the firm’s happiness segment rose 12.5% YoY to Rmb32.1bn, representing 38% of the firm’s total. Net loss reduced by Rmb1.17bn to Rmb60mn mainly driven by recovery in the earnings of Fosun Tourism.
　　1. Fosun Tourism: Revenue jump 131% YoY in 1H22 to Rmb6.42bn; the attributable net loss narrowed Rmb1.8bn to Rmb0.2bn; adjusted EBITDA turned positive YoY and reached Rmb1.2bn. Revenue from Club Med soared 336% YoY to Rmb5.7bn, driven by recovery in overseas demand. However, revenue from Atlantis Sanya (in Hainan province) fell 42% YoY in 1H22 due to COVID-19 in 2Q22.
　　2. Yuyuan: In 1H22, Yuyuan was affected by a resurgence of COVID-19, and the firm saw its revenue decline in 2Q22, weighing on the interim results. Revenue fell 3.9% YoY to Rmb22bn, and earnings dropped 47% YoY to Rmb754mn. Revenue and earnings fell 18% and 49.5% YoY in 2Q22 to Rmb9.8bn and Rmb420mn.
　　Wealth segment: Investment loss dragged earnings of insurance business; AM improved notably in 1H22. Revenue from the wealth segment rose 17% YoY in 1H22 to Rmb23bn and earnings fell 39% YoY to Rmb1.5bn.
　　1. Insurance: In 1H22, revenue grew 3% YoY to Rmb15.9bn. The attributable net loss reached Rmb542mn (vs. attributable net profit of Rmb1.4bn in 1H21) mainly due to a decline in the share prices of financial assets held by the insurance segment.
　　2. Asset management: Asset management (AM) revenue and earnings grew 70% and 101% YoY to Rmb7.1bn and Rmb2.0bn mainly driven by an increase in revenue of the AM property business and in the asset value of the AM business.
　　Intelligent manufacturing segment: Revenue from this segment rose 44% YoY in 1H22 to Rmb5.1bn, but attributable net profit fell 36% YoY to Rmb1bn primarily due to commodity price hikes.
　　Seeks balance between investment and divestment to strengthen cash flows, improve capital structure. Fosun International continued trying to strike a balance between its investment and divestment. In 1H22, the firm cut its shareholding in Tsingtao Brewery Company and sold AmeriTrust (an American insurance company). The firm plans to cut its shareholding in Sanyuan Foods to no more than 2% within three months. We believe that the firm’s disposal of its non-core assets will have limited impact on its business structure, and help optimize its capital structure and strengthen its financials.
　　Financials and valuation
　　Given investment losses due to market fluctuations and the firm’s declining profitability, we lower our 2022 and 2023 earnings forecasts 26% and 18% to Rmb9.5bn and Rmb12.9bn. The stock is trading at 0.3x 2022e and 0.3x 2023e P/B. Given the rate hike overseas and lower risk appetite in the sector, we cut our TP 32% to HK$8.5 (0.5x 2022e and 0.5x 2023e P/B), offering 43% upside. Maintain OUTPERFORM.
　　Risks
　　Worse-than-expected global COVID-19 containment; disappointing operation and investment income from core entities; geopolitical risk.