The Tomb-sweeping day of the Chinese took place on the 5th April. This annual tradition occurs whereby millions visit the graves of their relatives to mourn and clean up the tombs. Around 8 million people die in China every year. Under the one child policy, the population of the country is aging quickly, with over 200 million of the population classed as elderly. According to China Securities, the industry of taking care of those who passed away grew by 13.1% between 2008 and 2012. The value of the market is predicted to be RMB100 billion (US$16.28 billion) by 2017. Such potential enabled a funeral service provider called the Sino-life Group to IPO in Hong Kong in 2009 to expand its business into China.
The Two-Part Service
The death care service is divided into 2 aspects, the funeral service and cemetery management. The death of a person is not only a saddening event, but also a complicated one. For Chinese, it is sometimes even more challenging due to their complex traditions.
The funeral service business appears to be less profitable. Sino-life Group incurred a financial loss during 2011 and 2012. The price of the shares has been below HKD 0.50 since 2011, much lower than its IPO price HKD 1.60. Funeral service providers don’t have much pricing power, as the majority of funeral homes in China are predominately owned and operated by the government who dictate the prices that corporates must abide by. Therefore, funeral service providers are constrained in regards to the magnitude of their profit margin. Many of them have extended their business line to cemetery management in order to cover the expenses of providing funeral services.
Cemetery management requires companies to purchase land, build up graveyards, sell the tombs and take care of the graveyard throughout the year. The largest cemetery management firm in China, Fu Shou Yuan, just reported its highest net profit on record in 2014. The net profit last year was RMB 230 million (US$37.45 million). Due to the increasing demand, the company is investing millions of RMB to develop new cemeteries in both Mainland China and Hong Kong.
The recent performance of Fu Shou Yuan reflects how the Chinese value resting places. The burial price in China has been soaring in recent years. A unit of space in Beijing costs at least RMB 8000 (USD 1303) whereas the highest price can be RMB350, 000 (US$57, 000) per square meter. It is even higher than the average property price in the capital of China. For those who can’t afford the expensive final resting place, Fu Shou Yuan offers the cheaper columbarium service. The service line covers consumers from different income levels.
The expensive cemetery prices have triggered public discontent in the country. One of the reasons of such a phenomenon is the scarcity of available land. According to the Ministry of Civil Affairs, the existing graveyard capacity in China will be filled in 10 years. It is plausible that the authorities will loosen the policy for cemetery land in order to address the public concerns and demand. Besides, some death care service providers charge higher burial cost to cover the loss they incur in the funeral services. The government may plan to liberalise the funeral service in the future to prevent such issues.
There is still room of growth for the cemetery management companies in China. Investors have to look closely at the correlations of such performance to the prices of land in China to assess the profit margin of these companies. For the funeral services providers, government policy is crucial for their development.