Improved deleveraging visibility and earnings recovery lead Goldman Sachs to upgrade Fosun International to Buy

Overview

The report compares Fosun International and New World Development in terms of asset structure, valuation de-rating process, debt and liquidity, asset disposal capabilities, earnings outlook and shareholder returns. Both companies’ market capitalizations have fallen by about 70%-80% over the past four to five years, and their NAV discounts have widened significantly. However, Fosun performs relatively better in interest coverage, holding-company leverage, clarity of asset monetization plans and shareholder returns, leading to the rating upgrade.

Core views

Both companies previously expanded by taking advantage of the low-interest-rate environment, and faced high leverage, asset impairments and earnings declines after interest rates rose and the Hong Kong and Mainland China real estate markets weakened. Although Fosun’s consolidated leverage is higher and it has more short-term maturing debt, its cash and undrawn credit facilities provide relatively sufficient coverage for debt repayment needs. It also plans to sell commercial real estate and its stake in Banco Comercial Português, and to pursue listings or spin-offs of assets such as Atlantis Sanya, Club Med and Easun Technology. Goldman Sachs believes these measures are likely to reduce holding-company debt, lower interest expenses and unlock NAV. By contrast, New World Development mainly relies on residential sales, non-core asset disposals and potential farmland monetization. It lacks comparably clear disposal and target leverage guidance, while also facing long-term contractual obligations from 11 SKIES, limiting valuation re-rating upside.

Analysis framework

The report uses a combination of cross-company comparison and historical valuation review, comparing the two companies’ market capitalization declines, NAV discounts, P/B ratios, asset impairments, debt maturities, liquidity, interest coverage ratios and net gearing ratios. It also builds cash flow and asset disposal scenarios to estimate deleveraging paths, earnings recovery and potential NAV accretion from spin-off listings, and determines Fosun’s target valuation based on historical discounts and peer discounts.

Methodology notes

• Valuation methodsNAV discount method

  Apply a target discount based on segment NAV

  Fosun’s 12-month target price of HK$6.6 is based on a target NAV discount of 55%, which is one standard deviation below its historical average discount of about 40%.

• Relative valuationPeer comparison method

  Compare NAV discounts, P/B ratios and segment valuation multiples

  The report compares the two companies with Hong Kong and Mainland China real estate and conglomerate peers, and references EV/EBITDA or P/E multiples of Marriott, Hilton and listed intelligent manufacturing companies to assess potential spin-off assets.

• Financial analysisDeleveraging and cash flow scenario analysis

  Project changes in debt based on operating cash flow, asset disposals, capital expenditure and financing costs

  The report forecasts each company’s net debt and net gearing ratio through FY28E, and assesses the feasibility of Fosun reducing holding-company total debt to the Rmb60bn target.

• Segment valuationSum-of-the-parts valuation method

  Individually assess the value of potential listed and spin-off assets

  Atlantis Sanya is referenced against independent appraisal value and C-REIT yields, Club Med is valued using 10-15x EV/EBITDA, and Easun Technology is analyzed using 15-25x FY26E P/E in sensitivity analysis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Fosun International（0656.HK）

  Main recommended stock in the report

  Strengths

  The asset disposal list and 2030 deleveraging target are relatively clear; liquidity is relatively sufficient; earnings show signs of recovery; willingness to pay dividends and repurchase shares is relatively strong.

  Weaknesses

  The consolidated net gearing ratio remains high, a large amount of debt matures within one to two years, and the decline in holding-company debt has stalled over the past two years.

  Comparison

  Compared with New World Development, Fosun has a higher interest coverage ratio, lower holding-company leverage, and a clearer path for debt reduction and asset value unlocking.

  Risks

  Delays in asset sales or spin-offs, transaction valuations below expectations, disposal of profitable assets leading to lower recurring earnings, and risks related to interest rates, regulation and the real estate market.

• New World Development（0017.HK）

  Comparison target

  Strengths

  After completing large-scale refinancing, the proportion of debt maturing in the near term is relatively low; a recovery in Hong Kong residential market and property sales can support cash collection; net debt has gradually declined.

  Weaknesses

  Interest coverage capacity is relatively weak, debt reduction and asset disposal targets are not sufficiently clear, and the suspension of ordinary dividends and perpetual bond coupons reflects pressure to preserve cash.

  Comparison

  Consolidated leverage is lower than Fosun’s, but net debt to EBITDA at the holding-company level is higher, and 11 SKIES obligations constitute an additional long-term burden.

  Risks

  11 SKIES lease obligations, high Mainland China real estate inventory, residential sales volatility, uncertainty over asset disposals, and management and strategic stability.

• Atlantis Sanya

  Fosun’s potential C-REIT spin-off asset

  Strengths

  Independent appraisal value of Rmb13.9bn, with a planned sale of a 70% stake, offering potential to release cash and reduce debt at the project level.

  Weaknesses

  Most of the proceeds are expected to be used to repay project debt, leaving relatively limited cash returning to the group.

  Comparison

  The target yield is broadly in line with the roughly 4%-5% trading range of other A-share listed C-REITs.

  Risks

  There is uncertainty over listing approval, valuation, market conditions and transaction completion timing.

• Club Med

  Fosun’s potential Hong Kong listing asset

  Strengths

  It has a global resort network spanning Europe, the Middle East, Africa, the Americas and Asia, and a potential listing could unlock asset value and raise capital.

  Weaknesses

  The tourism business is cyclical, and valuation is sensitive to earnings and market multiples.

  Comparison

  The report conducts sensitivity analysis using 10-15x EV/EBITDA, below the forward multiples of Marriott and Hilton.

  Risks

  The listing plan remains uncertain, and tourism demand, operating margins and capital market volatility may affect valuation.

Key data

• Fosun target priceHK$6.612-month target price, with the previous target price at HK$5.1.
• Fosun holding-company deleveraging targetRmb90bn down to Rmb60bnTargeted to be achieved before 2030.
• Fosun and New World Development FY28E consolidated net gearing ratios78% / 71%Goldman Sachs forecasts both companies will gradually deleverage.
• Interest coverage ratioFosun 1.4x; New World Development 1.0xFosun’s interest payment capacity is relatively better.
• Holding-company net debt to EBITDAFosun 11.8x; New World Development 21.6xFosun’s leverage at the holding-company level is lower.
• Fosun consolidated debt and liquidityDebt Rmb224bn; liquidity Rmb206bnLiquidity includes Rmb61bn in cash and Rmb145bn in undrawn credit facilities.
• Fosun potential capital monetization scaleUp to about Rmb64bnMainly includes commercial and residential properties, Banco Comercial Português stake and other assets.
• Potential NAV accretion for Fosun from spin-offsUp to HK$2.8/share or 19%Depends on spin-off listing valuations, execution timing and use of proceeds.
• Fosun FY28E net profit forecastRmb6.6bnMainly driven by the Happiness segment turning profitable and declines in holding-company interest and management expenses.
• Fosun 1H26 net profit guidanceRmb1.5-1.8bnMore than doubling year on year, compared with Rmb0.7bn in 1H25.
• New World Development 11 SKIES potential lease obligationsAbout HK$71bnEstimated long-term obligations through 2066 based on disclosed guaranteed rent of HK$1.8bn per year.
• Fosun FY26 shareholder return commitmentTotal dividend of at least HK$1.5bn or HK$0.18 per shareIn addition, it has repurchased about 0.8% of shares outstanding since late February.

Impact & implications

If Fosun sells or spins off assets as planned and uses the proceeds to repay debt, holding-company interest expenses are expected to decline, earnings quality and cash flow coverage will improve, and the current deep NAV discount may converge toward conglomerate peers with healthier financial positions. For New World Development, a recovery in Hong Kong residential sales would help reduce net debt, but long-term lease commitments, inventory pressure in Mainland China real estate and the lack of a clear deleveraging target may continue to limit valuation recovery.

Risks

• Fosun’s asset disposals or spin-off listings progress more slowly than expected, or transaction valuations are below book value and analytical assumptions.
• Selling high-quality profitable assets may further weaken recurring profit and holding-company dividend income.
• Fosun’s relatively high consolidated leverage and debt maturities concentrated within one to two years may increase refinancing pressure.
• Renewed weakness in the Hong Kong and Mainland China real estate markets may lead to more asset impairments and drag on sales proceeds.
• Interest rates remaining high may limit the decline in interest expenses and valuation recovery.
• Long-term lease obligations from New World Development’s 11 SKIES project may continue to create cash flow pressure.
• Regulatory reviews, cross-border capital flow restrictions and changes in management strategy may affect asset disposals and capital allocation.

What to watch

• Progress and valuations of Fosun’s sale of Shanghai BFC, Wuhan BFC, 28 Liberty, HK Clear Water Bay and its Banco Comercial Português stake.
• Listing or spin-off progress of Atlantis Sanya C-REIT, Club Med, Easun Technology and Fosun Adgenvax.
• Whether Fosun’s holding-company total debt falls from about Rmb90bn to Rmb60bn as planned, and the extent of decline in interest expenses.
• Whether Fosun’s Happiness segment can turn from loss to profit and drive FY28E group net profit to Rmb6.6bn.
• Fosun’s FY26 dividend commitment of at least HK$0.18 per share and subsequent execution of share repurchases.
• New World Development’s Hong Kong residential contracted sales, non-core asset sales and progress in monetizing farmland in the Northern Metropolis.
• The outcome of negotiations between New World Development and the Hong Kong Airport Authority over potential adjustments to the 11 SKIES contract.
• Quarterly or semiannual changes in the two companies’ net gearing ratios, interest coverage ratios and refinancing costs.