The Zhitong Finance App learned that Everbright Securities released a research report saying that 2023H1 key property companies' net profit growth rate bottomed out and the impact on real estate-related business weakened. At the same time, the growth rate of trade receivables was controlled, impairment provisions were sufficient, basic property management grew steadily, community value-added business recovered, property companies gradually lost “real estate attributes” and increased “service consumption” attributes; the Federal Reserve's interest rate hike cycle has ended, real estate credit risk has been mitigated, and the property index is still at a historical low point in time for the property management industry.

Incident: On February 26, 2024, the property sector rose as a whole. The companies with the highest increases were: Ya Life Service (+11.20%), Xuhui Yongsheng Service (+8.45%), Wanwuyun (+7.87%), Jinmao Service (+6.33%), Xincheng Yue Service (+6.25%), and Country Garden Service (+5.32%).

Everbright Securities reviews are as follows:

The central government has set a “equal treatment” for real estate financing, the use of operating property loans has expanded, and a “white list” for real estate project financing has gradually been implemented. From the supply side, financial support for real estate continues to grow, and it is incumbent upon it.

1) At the end of October 2023, the Central Financial Work Conference emphasized “treating all people equally to meet the reasonable financing needs of real estate enterprises with different forms of ownership”; on November 17, the People's Bank of China, the General Administration of Financial Supervision, and the China Securities Regulatory Commission jointly held a symposium on financial institutions. The conference reaffirmed “equal treatment” and emphasized that real estate companies operating normally would not hesitate to lend, draw on, or cut loans. Continue to make good use of the “second arrow” to support private real estate companies to issue bonds and finance.

2) At the beginning of 2024, the supervisory authorities continued to actively optimize real estate policies. On January 24, 2024, the General Office of the People's Bank of China and the General Office of the General Administration of Financial Supervision jointly issued the “Notice on Accomplishing the Management of Operational Property Loans”, which allows operating property loans to repay existing loans and open market bonds, broadening the sources of funding for housing companies' debt repayment, so that housing enterprises can effectively revitalize the value of existing properties and improve their ability to pay debts.

3) On the afternoon of February 20, the Ministry of Housing, Urban-Rural Development held a video dispatch conference to accelerate the implementation and effectiveness of the urban real estate financing coordination mechanism. As of February 20, 214 cities in 29 provinces have established real estate financing coordination mechanisms, proposed a “white list” of real estate projects that can be provided with financing support in batches and promoted to commercial banks, involving 5,349 projects; 162 projects in 57 cities have received a total of 29.43 billion yuan in bank financing.

Support on the financing side of housing enterprises has been strengthened, and the guarantee of repayment of receivables from property related parties has improved.

2019-2023H1, the arithmetic average of financial asset impairment (absolute value) /core operating profit ratio of key property companies we are concerned about increased from 2.5% to 7.0%, of which the private enterprise group increased from 3.6% to 12.4%; the state continues to provide financing support to housing enterprises from the supply side, which helps improve liquidity problems of housing enterprises, ease cash flow pressure, improve the guarantee of repayment of receivables from property related parties, and the impact of receivables impairment on profits is expected to ease.

The property industry is positioned as a “grassroots pillar of community governance” and has strong policy support.

The 2023 policy focuses on supporting the development of the property industry at the level of household services and household consumption; starting October 9, 2023, the People's Daily launched the “Focus on Community Property Services” series to discuss how to improve the level and quality of property services to make the lives of community residents more comfortable; on January 15, 2024, the State Council introduced 26 “Silver Hair Economy” articles to encourage properties to develop meal assistance and home care services for the elderly. Overall, the property industry is concerned with people's livelihood, and the policies are friendly.

Property fundamentals are stable, risk factors are mitigated, and opportunities at the bottom of the sector are seizing allocation opportunities.

The net profit growth rate of 2023H1 key property companies bottomed out and rebounded, and the impact on real estate related business weakened. At the same time, the growth rate of trade receivables was controlled, provision for impairment was sufficient, basic property management grew steadily, community value-added business resumed, property companies gradually lost “real estate attributes” and increased “service consumption” attributes; the Federal Reserve interest rate hike cycle was terminated, real estate credit risk was mitigated, and the property index is still at a historically low level. Currently, it is a good time point for allocating the property management industry.

Risk warning: Outreach competition intensifies; real estate-related business continues to decline; impairment of accounts receivable affects profits.