On August 29, Fu Shou Yuan (01448.HK), known as the "leading funeral services stock," delivered interim results that left investors calling them "highly questionable": revenue halved to 610 million yuan, and after posting profits exceeding 500 million yuan in the same period last year, the company reported a loss of 230 million yuan in the first half of this year, representing a 145% year-over-year profit decline. This marks Fu Shou Yuan's first loss since its 2013 listing.

In reality, three key indicators affecting the fundamentals of the funeral services industry have not undergone fundamental changes: first, by the end of 2024, China's urbanization rate among permanent residents rose to 67%, with over 10 million rural residents moving to urban areas annually for the past six years; second, the population aged 60 and above exceeds 310 million; third, the cremation rate reached 58.8% (2021 data).

Fu Shou Yuan presents changes in these three metrics in its annual performance reports, considering them important variables driving massive demand for funeral services. However, against this backdrop, Fu Shou Yuan's performance has suffered significant losses.

**Cemetery Plots Sold at Half Price**

From a core business perspective, Fu Shou Yuan primarily provides cemetery services (including cemetery plot sales and cemetery maintenance) and funeral services.

In the first half, cemetery services revenue, which has long accounted for over 80% of total revenue, halved from 910 million yuan in the 2024 interim period to 480 million yuan, falling back to levels from 10 years ago.

Although cemetery plot sales are cyclical, such a dramatic decline remains rare. Over the 12 years since listing, Fu Shou Yuan's cemetery services revenue has fluctuated upward, reaching a peak of 1.287 billion yuan in the 2023 interim period. The financial report at that time explained that in the first half of 2023, following the lifting of pandemic restrictions, accumulated and deferred funeral consumption demand was rapidly released, with commercial cemetery sales (non-public cemetery) service revenue increasing by 84% year-over-year.

Compared to public cemetery sales and cemetery maintenance, the poor performance of commercial cemetery sales was the main cause of the cemetery services revenue decline. In the first half of 2025, Fu Shou Yuan's commercial cemetery sales experienced both volume and price declines, with 6,253 units sold, a decrease of 451 units year-over-year, while revenue from this segment halved from 810 million yuan to 396 million yuan. According to the financial report, the average selling price per cemetery plot was 57,000 yuan in the first half, representing a 47.5% price decline.

Selling cemetery plots at half price has never occurred in Fu Shou Yuan's 12 years since listing. Except for a minor 0.2% decline in the 2024 interim period, the average selling price per cemetery plot has steadily increased by over 1% annually, with increases of 21% and 15% in the 2017 and 2023 interim periods, respectively.

Beyond selling cemetery plots, Fu Shou Yuan extends into upstream and downstream industry chains, developing funeral services including funeral planning, body handling, and farewell ceremonies. Funeral services revenue typically accounts for 10%-20%. In the first half of 2025, funeral services revenue declined 34% to 120 million yuan, with customer numbers falling 25% to 26,000.

Fu Shou Yuan explained that the first-half performance decline was mainly due to cemeteries across regions responding to the overall economic environment, with "customers' consumption behavior becoming more cautious during the period," while the company simultaneously adjusted the supply structure of high and medium value-added products, increasing mid-priced new products.

Fu Shou Yuan operates cemeteries and funeral facilities across 17 provinces and cities nationwide. In the first half, except for the small-base Shaanxi region which saw slight revenue growth, all other regions experienced varying degrees of revenue decline. The Shanghai headquarters, which contributes over 40% of revenue, was hit hardest with semi-annual revenue of 240 million yuan, a decline exceeding 54%. Regions including Henan, Anhui, Jiangsu, and Heilongjiang saw revenue declines exceeding 20 million yuan year-over-year.

**Two Major Expense Items**

The sharp drop in cemetery plot prices and declining sales volumes led to an overall revenue decrease of approximately 500 million yuan for Fu Shou Yuan. The transformation from 510 million yuan profit to 230 million yuan loss within a year was also driven by two rarely seen major expenses in the first half.

The first was asset impairment and goodwill write-downs of 218 million yuan for cemetery assets. Fu Shou Yuan management explained in the financial report that this was based on changes in business operating environment and operating cash flow expectations, conducting goodwill impairment and bad debt provisions for cemetery projects in Shandong, Jiangxi, Hebei, Hubei, and other locations.

The second was other general operating expenses of 220 million yuan, an increase of 145 million yuan year-over-year, up over 194%. The financial report stated this was due to slight increases in maintenance and office expenses, as well as "increased tax costs for some subsidiary companies due to different tax factors."

One Fu Shou Yuan investor believes that with poor conditions in the funeral services industry, combined with regulatory policies affecting the funeral industry, when fixed assets like cemetery plots show significant market depreciation, timely impairment provisions can avoid greater financial impact in subsequent years. Therefore, he understands Fu Shou Yuan's 220 million yuan impairment provision, but the significant increase in general operating expenses was unexpected. Fu Shou Yuan has disclosed "other general operating expenses" since 2018, with this expense typically ranging from 50-90 million yuan in previous interim reports.

Declining revenue and increased tax costs turned cemetery services' profit margin from 54.4% in the same period last year to -44.9%. Previously, cemetery services was Fu Shou Yuan's most profitable business, with profit margins exceeding 80% in the early years after listing.

The 2025 interim report repeatedly mentions that performance decline was affected by "factors such as value-added tax on cemetery plot sales services." Some investors speculate this "other general operating expenses" was affected by one-time supplementary tax payments imposed by various localities on the funeral industry, rather than ongoing expenses. Attempts to reach Fu Shou Yuan's relevant departments for comment were unsuccessful by press time.

Additionally, in April 2025, the Ministry of Civil Affairs released the "Funeral Management Regulations (Draft Amendment for Public Comment)," establishing a basic funeral public service system at the institutional level, implementing government pricing for core services including body transport, cremation, and ashes storage. Simultaneously, unprecedented strict restrictions were imposed on land use, such as limiting individual ash burial plot areas to no more than 0.5 square meters, while strongly promoting and incentivizing space-saving ecological burial methods like sea burial and tree burial.

In recent years, public sentiment regarding "sky-high cemetery prices" and "cemetery prices higher than housing prices" has emerged in various locations, with some citizens even choosing to purchase residential apartments for ash storage. Consequently, many locations have introduced measures to limit public cemetery prices and restrict commercial cemetery plot unit areas.

In 2024, Shanghai Civil Affairs Bureau publicly responded to citizen demands, stating that to conserve land resources and reduce funeral burdens on the public, Shanghai civil affairs departments actively promote cemetery miniaturization, "requiring all commercial public cemeteries to diversify burial options and reduce price levels."

Against the backdrop of population aging, to increase revenue, Fu Shou Yuan is also attempting to extend its service chain, such as launching "pre-need contract" services, where customers plan and prepay for future funeral services for themselves or relatives while still alive. In the first half of 2025, Fu Shou Yuan cumulatively signed approximately 10,252 pre-need contracts, a decrease of 1,671 compared to the same period last year.

Compared to asset-heavy cemetery business, funeral services and pre-need contract business are temporarily unaffected by cemetery price restrictions and similar factors. Pre-need contract services can lock in future customers and revenue in advance, hedging against immediate cemetery sales volatility. Therefore, investors view the sustained growth of pre-need contract signings and the revenue proportion of non-cemetery services as important factors for Fu Shou Yuan's revenue structure transformation and achieving a "turnaround against headwinds."