CITIC Securities Property Service Interim Report General Review: Back to Basics, Respond to Challenges, Improve Brand Quality, Increase Dividends

The Zhitong Finance App learned that CITIC Securities released a research report saying that the property service industry did face challenges in property fee collection rates, but the company continued to achieve steady profit growth in the first half of the year by improving operations, improving technological efficiency, and returning to basic services, especially the influence of brand services. In terms of profit structure, the share of cyclical business declined further. In terms of cash flow, brand companies have more prominent advantages. Increasing dividend payments is gradually entering a positive cycle, and the industry expects a dividend rate of 6.2% to be attractive. Optimistic about the property services industry.

CITIC Securities's main views are as follows:

The enterprise returns to basic services and optimizes the management area through multiple channels.

In the first half of 2025, the revenue growth rate of the 14 sample property service companies was 5.3%, down 1.6 percentage points year on year. Among them, basic property service revenue growth rate was 8.1%, down 3.9 percentage points year on year. Despite the slowdown in growth, basic property services are still the main source of growth for property companies. The area under management grew steadily, with a year-on-year increase of 4.4% in the first half of 2025. The company takes the initiative to improve the quality of incremental and stock contracts. On the one hand, it withdraws inefficient stock projects, and on the other hand, places equal emphasis on scale and quality during expansion, focusing on the competitive circuit and speeding up the layout of existing housing development capabilities. Overall, despite facing macroeconomic pressure, enterprises are still actively improving management efficiency through various means. The sample enterprise's gross margin for basic property services in the first half of 2025 was 16.2%, down 0.5 percentage points from the previous year, but it is still at a reasonable level. At the same time, gross margins among enterprises have relatively converged, and profitability has declined due to factors such as delivery challenges that some high-profit enterprises may face delivery challenges.

The value-added service business continued to be adjusted, and the share of developers' business declined further.

Value-added services for owners are still in the business adjustment period. In the first half of 2025, the value-added service revenue of the sample enterprise owners fell 5.6% year on year (1H24 growth rate was 4.7% year on year), accounting for 9.7% of revenue, down 1.1 percentage points from the same period last year. Since 2023, value-added services for owners have gone from a period of rapid development to a state of business pruning. The decline in revenue is mainly due to enterprises shutting down some businesses with low gross margins or low potential for development. Developer-related business continued to decline. In the first half of 2025, the sample company's value-added service revenue for non-owners fell 8.5% year on year. It continued to decline starting in 2022, and its share of revenue fell further by 1 percentage point to 6.5% compared to the same period in 2024. The value of value-added services for non-landlords themselves within the industrial chain is extremely low, and cash flow is poor. In the future, the share of property companies' revenue and profit may decline for a long time.

The company has further strengthened its accounts receivable and cash flow management, and is expected to achieve healthy inflows throughout the year, and brand differences will continue to widen.

In the first half of 2025, when residents' willingness to pay declined and some related parties were not satisfied with delivery projects, it became more difficult to collect property fees. The original value of trade receivables from sample companies increased 7.5% year on year in the first half of the year. The growth rate was slightly faster than the year-on-year growth rate of revenue, but the growth rate narrowed sharply from 18.8% in the first half of 2024. Businesses control the level of accounts receivable by transferring them to the supply chain (reflected in increased accounts payable) and increasing advance collection (reflected in increased contractual liabilities). In the first half of 2025, the 11 sample companies that announced operating cash flow (OCF) had a total net operating cash flow outflow of 1.7 billion yuan. Of these, 7 companies deteriorated compared to last year, and 4 companies were optimized compared to last year. The company clearly outperformed the industry with its brand power. Of course, the seasonal cash flow distribution of the industry is uneven, and the annual report is a better time point for observation. I believe that the operating cash flow of the company's annual report can also fully cover net profit.

Corporate dividend payments are more active, and dividend rates are attractive.

In mid-2025, 7 sample companies plan to pay interim dividends. Of these, the dividend rate of 3 companies increased compared to the same period last year. In the first half of 2025, the 14 sample companies' monetary capital (including cash accounts such as time deposits) increased by 3.1% year-on-year. It is expected that there is room for further improvement in the annual sector dividend rate. The average net profit dividend rate to mother will reach 73%, the dividend rate will reach 2.5%-9.5%, and the average dividend rate will be 6.2%.

Risk warning:

The risk that the property fee collection rate will fall short of expectations; the risk of increased competition for enterprise outsourcing in the inventory era; the problem that the ability of enterprises to generate cash flow is large, and the difference between OCF and core net profit of some companies is too large; although the industry is fully capable of continuing to drastically increase the level of dividends, there is also a possibility that some companies' intention to pay dividends will continue to be low; although withdrawal may increase the profitability of enterprises, this method of increasing the company's profitability may be difficult to sustain in the medium to long term.