No winter is insurmountable, and not a single spring won't come.

For investors in the capital market, 2023, which has just turned the page, will probably be a year of mixed feelings. Looking back over the past year, market sentiment has changed several times from full expectations at the beginning of the year to gradual pessimism in the later stages.

However, if one were to discuss which sectors were most disappointed, the property management services sector in the Hong Kong stock market would probably be one of the strong candidates. Affected by factors such as the macroeconomic environment and the downturn in the real estate market, Hang Seng's services and management sector fell by 43.98% in 2023, outperforming the Hang Seng Index by 30.16 pct; even compared to the “brother” sector, Hang Seng Real Estate and Construction, it still lost 13.06 pcts, so there is no need to say much about the sluggish sector trend.

From enjoying the popularity of the moon more than three years ago, to now being shunned by investors from all walks of life after “getting rid of charms,” the performance of the property management industry in recent years can be described as a perfect interpretation of the phrase “everything has a cycle.”

Although for property investors, the past year has been a bit difficult to look back on, “those who have come can still be chased”. With all kinds of substantial shortfalls and pessimistic price expectations, will it be necessary for the next stage of the market to reprice the deeply adjusted property management industry? Looking ahead to 2024, can the property management industry actually look forward to a resurgence?

The industry's performance during the adjustment period was tested

Looking back at the historical trends in the property management sector of Hong Kong stocks, 2021 can be considered a very important inflection point. Beginning in the middle of this year, along with drastic changes in the real estate industry, related parties were affected by the liquidity crisis of housing enterprises, and the growth logic of the original property management business model began to face real challenges.

As far as specific performance is concerned, on the one hand, the trend of slowing down performance of property companies is intensifying, and the previous trend of high performance growth is unsustainable; on the other hand, the sentiment in the secondary market has also gradually returned to rationality, and the stock prices and valuations of related companies have continued to decline.

Perhaps to the surprise of many investors, the negative feedback cycle in the property management industry mentioned above did not dissipate in 2023. According to statistics, in the first half of 2023, the total revenue of the 50 listed companies (46 H shares and 4 A shares) was 124.8 billion yuan (RMB, same unit), an increase of 9.4% over the previous year. Compared with the 27.8% growth rate in the same period in 2022, the total net profit to mother was 11.1 billion yuan, a slight increase of 0.4% over the previous year, and growth basically stagnated.

Looking at the trend of changes in the performance of listed real estate companies, it is easy to see that the development logic of the property management industry is already undergoing drastic changes at a time when the economy is converting old and new kinetic energy. Needless to say, the property management industry has basically left the high growth stage of “scale is king”. Against the backdrop that the new housing market is expected to continue to peak and fall, property companies will naturally need to shift their focus from the incremental market to the stock market. In the process, the Zhitong Finance App believes that challenges and opportunities will depend on each other, and that the trend of survival of the fittest in the industry may continue to be interpreted and even further strengthened for a long time to come.

Diversification continues to present structural opportunities

In between elevation, the clock has already been set to 2024. After more than two years of adjustments, the property management sector has probably reached a crossroads where it is necessary to choose a new direction.

Admittedly, changes in the current pace of economic recovery are still difficult to grasp, but judging from the more positive policy tone released by senior management, the new year is quite worth looking forward to, and goods companies that go to battle lightly are also expected to pass through “Wanjou Mountain.”

First, looking at macroeconomic policies, in response to the 2024 economic situation, the Central Economic Work Conference held earlier sent a more positive policy signal, and fiscal policy and monetary policy are expected to be strengthened simultaneously. The meeting demanded that in 2024, we should insist on seeking progress through stability, promote stability through progress, and break first.

Wang Qing, chief macro analyst at Dongfang Jincheng, believes that “starting first, then breaking” means that in the process of converting old and new growth momentum, the real estate industry cannot decline too fast until the new momentum represented by high-tech manufacturing is fully expanded, as a representative of traditional economic growth momentum. Furthermore, the real estate industry must curb the rapid downward trend in the commercial housing market until the share of the “three major projects” such as affordable housing reaches a certain level.

Based on the above policy tone, it can be expected that external risks in the property management industry are expected to be further diluted and cleared up this year.

However, if we focus on the property management industry's own development logic, mainstream real estate companies are expected to continue to reduce or even get rid of their dependence on related real estate companies in the new year, while the characteristics of further decyclicalization of business may be strengthened.

According to data from sample real estate companies selected by Dongwu Securities, the share of property companies' third-party project management area gradually increased to 58% during the 23H1 period, an increase of 2.7 pct compared to 55.3% in 2022, indicating that the dependence of property companies on related parties is further weakening.

At the same time, in the value-added service segment of the property enterprise community, the share of cyclical businesses such as home improvement and real estate agency revenue continues to shrink, and related property companies seem to be focusing more energy on weak cycle businesses such as lifestyle services. In addition, the share of revenue from basic property management services increased again. 23H1 property management basic property services accounted for about 65.3% of revenue, up 3.4 pcts from 61.9% in 2022.

Returning from an investment perspective, what needs to be acknowledged now is that the property management industry's growth logic is probably not as smooth as it was three years ago. After all, at least in the short to medium term, the impact of the development status of related housing enterprises on real estate companies cannot be ignored. Based on this, the steady performance and development certainty of state-owned property enterprises associated with housing enterprises at this stage may be better. Relevant targets include Poly Property (06049), CNOOC Properties (02669), etc.; in addition, the Zhejiang region, which has good warehouse fundamentals, and the property enterprise Binjiang Service (03316), which focuses on high-end improved products, may also have some value for attention.