Futubull Finance APP learned that the View Index released the Property Service Development Report for August 2024. In August, many real estate enterprises disclosed their interim performance expectations. The forecasts of top companies such as A-Living Services, CG Services, Jinke Services, and Everg Services showed a general decline in net income, even from profit to loss; however, the market remains optimistic about the overall industry and some state-owned real estate enterprises.

In the past two months, the public opinion calling for a reduction in property fees, including in Chongqing, has been on the rise. Currently, very few properties have actually reduced fees, with the vast majority still at the stage of raising demands, convening owners' meetings, or negotiating. The View Index believes that this will bring challenges to basic property services companies, with property fee collection rates, gross margins, or further declines.

Some enterprises have achieved significant results in overseas expansion in the first half of the year, while the secondary market remains sluggish. During the reporting period, real estate companies such as S-Enjoy Service, RSun Ser, Jinbi Property, Guangzhou Pearl River Development Group Co., Ltd., and Yongsheng Service disclosed their market expansion situation for the first half of the year through official channels. Overall, they demonstrated a wide range of business formats and a large number of project expansions. In the secondary market, the performance of listed property stocks in Hong Kong has been consistently weak for three consecutive reporting periods. During this period, CG Services slipped two places in total market value rankings to fifth among listed property stocks in Hong Kong.

The calls for reducing property fees are rising, and basic property services are facing challenges.

Since the implementation of the "Chongqing Property Service Charge Management Measures" (YFB No. 104 of 2023) at the beginning of June, the calls for reducing property fees in many places, including Chongqing, have been on the rise. By early August, it was reported that hundreds of residential property owners in Chongqing had applied to reduce the current property fees, drawing industry attention.

It is reported that since November 2023, Guangzhou, Qingdao, Yinchuan, Wuhan's Jiangxia District, and other places have updated property fee standards. Among them, Guangzhou, Chongqing, and Qingdao have kept the original government-guided prices unchanged; while Yinchuan only included the pre-property and parking fees for ordinary residential communities in the government pricing catalog in 2021, and drafted the "Consultation Draft" starting in 2023. The View Index believes that there may be other cities following similar policies in the future.

According to the View Index, the previous policy updates did not cause much reaction. The current wave of fee reductions in Chongqing has surged, but currently, very few properties have actually reduced property fees, with the vast majority still in the stage of raising demands, convening owners' meetings, or negotiating.

From the perspective of owners, the presale system of commercial housing usually requires the development and construction unit to select the property enterprise, sign property service contracts, determine property fees, and make them public before presale. Owners may feel that the absence during contract negotiation and price negotiation constitutes a lack of respect for their rights. At the same time, the overall economic downturn in recent years has made owners more strongly demand a reduction in living costs. Coupled with the severe decline in property asset values, owners believe that the services provided by the property companies do not match the price, so property fees are the first to be cut, becoming the target of reduction.

Local governments have introduced such policies mainly aimed at the pre-property service charges (government-guided prices for pre-phase property services of ordinary residential properties before the establishment of the owners' meeting), the purpose of which is to solve the pressure of commercial property inventory and not to intervene in the later market price adjustments. Naturally, owners living in already occupied communities can also measure property value against this standard. If it develops into price regulation of the property management industry under public opinion, price limits will be relatively low due to issues affecting people's livelihoods, which may exacerbate supply and demand contradictions, making it difficult to provide good services.

As the cornerstone of the property company's performance, basic property services will be challenged, and the collection rate of property fees and gross margin will face further downward pressure. On one hand, this will drive property companies to accelerate their steps in "reducing costs and increasing efficiency" and achieve qualitative breakthroughs; on the other hand, property companies with strong operational capabilities will further highlight the advantages of market expansion.

Multiple property enterprises expect a decline in mid-term profits, while the market is bullish on state-owned property enterprises.

August welcomes the interim performance disclosure season. As of the date of this draft, only A-Living Services, CG Services, Jinke Services, and Everg Services have disclosed performance forecasts among the top property enterprises. On the evening of July 26, Zhongtian Service, a company listed on the A-share market, released its semi-annual report for 2024, becoming the first property enterprise to publish mid-term performance this year. From the companies that have already disclosed, net profits have generally declined.

Specifically in terms of data, CG Services is expected to record approximately 20.9 billion yuan-21.2 billion yuan in revenue in the first half of 2024, a slight increase from 20.733 billion yuan in 2023, mainly due to the comprehensive increase in property management services, community value-added services, and the "three supplies and one business" business income; net profit for the period is about 1.47 billion yuan-1.65 billion yuan, with a net profit attributable to shareholders of about 1.36 billion yuan-1.55 billion yuan, a decrease from the same period last year, mainly due to an increase in provisions for credit losses due to a significant increase in credit risks for customers, a decrease in related financial investment income, and a decrease in business gross margin.

It is worth noting that CG Services has encountered difficulties in collecting property fees, and it is expected to record a total of no less than 12.2 billion yuan in bank deposits and cash and cash equivalents, a slight decrease compared to the previous year; the net cash flows from operating activities are expected to be no less than 0.1 billion yuan, while it was 2.192 billion yuan in the same period in 2023, showing a significant decline. CG Services explained that this was mainly due to the decline in net profit, an increase in credit risks related to customers (customers with significantly increased credit risks), and adverse external factors leading to the need to improve the progress of comprehensive charges, resulting in an increase in accounts receivable.

Jinke Services is expected to incur losses of 0.1 billion yuan-0.3 billion yuan in the first half of 2024, while the net profit attributable to owners in the same period for the year 2023 was about 0.189 billion yuan. The main reason for this loss is a further increase in the provision for impairment of receivables from Jinke Real Estate.

At the same time, due to multiple provisions for impairment, resulting in a large accumulated loss in accounting, jinke services plans to use reserve funds to offset the loss and facilitate the distribution of dividends after the net income is turned positive following the implementation of the latest regulations of China's Company Law on July 1, 2024.

A-living services is expected to record its first loss, with a net loss attributable to shareholders between 1.54 billion yuan and 1.7 billion yuan, compared to a net profit of 0.84 billion yuan in the same period last year.

The company explained that due to the impact of the slowdown in real estate development and sales, the revenue and profit of out-of-bound value-added services have significantly declined, while other business sectors have been affected by the economic environment and the improvement of service quality, resulting in pressure on profit margins. Related-party customers are facing increased debt repayment pressure and have undergone significant changes in credit conditions, and the group has made provisions for impairment of trade receivables from related-party customers, amounting to approximately 2.7 billion yuan to 2.9 billion yuan.

Although the performance of companies that have announced performance expectations is not satisfactory, the market believes that the industry as a whole and some state-owned physical enterprises are still stable, while private property management companies face greater challenges.

Some companies achieved significant results in overseas expansion in the first half of the year, while the secondary market remained low during the period.

During the reporting period, property companies including s-enjoy service, rsun ser, cg services, guangzhou pearl river development group co.,ltd., and china ovs ppt disclosed their market-oriented expansion in the first half of the year, showing a wide coverage of business formats and a large number of project expansions.

For example, in the first half of 2024, zhongtian service obtained nearly 260 high-quality projects, including residential, commercial office, public, and government-enterprise services. Apart from residential and non-residential formats, s-enjoy service expanded into 12 catering projects and 16 elevator service projects. In the first and second quarters, cg services expanded a total of more than 260 projects, covering diverse formats such as public buildings, industrial parks, commercial writing, hotels, and shopping centers.

The Boao property report released by the Index showed that as the industry enters the stock competition stage, the expansion of third-party companies becomes a key consideration for enterprises and investors, as well as an important indicator to measure the market competitiveness, brand value, and independence of physical enterprises.

Just looking at the situation announced by major companies in the current period, the expansion heat of leading companies has decreased compared to the previous reporting period. But Cg Services, Longfor Smart Life, and Want Lianghang still achieved good results.

In particular, Cg Services' professional industrial park operation and development platform—Bichuang Operation announced on August 2 to enter Zhaoqing Hanhe (Gaoyao) Fine Chemical Base and Guangdong Bangpu Circular Technology Co., Ltd., carrying out in-depth cooperation in property services, space operation, corporate services, environmental management, energy management, and more, jointly exploring sustainable parks and promoting high-quality park development.

Data shows that the former covers an area of ​​about 2000 acres and is a comprehensive industrial base in Guangdong Province integrating raw material supply, production processing, warehousing, and logistics. Currently, the park has developed and constructed more than 560 acres. The latter is located in Sanshui District, Foshan City, is a key comprehensive industrial base in Guangdong Province integrating raw material supply, production processing, warehousing, and logistics. Currently, the park has developed and constructed more than 560 acres.

Longfor Smart Life announced on August 7 to cooperate with IKEA to provide property services for its Greater China headquarters - Shanghai Huiju Center. The total construction volume of the project exceeds 0.43 million square meters, with commercial retail area reaching 0.15 million square meters, and supporting office building area of ​​approximately 0.06 million square meters.

At the same time, multiple property companies have seen equity transfer or M&A activities during the reporting period. Notably, Tande Co. plans to transfer 100% of the equity of its three wholly-owned subsidiaries to Xi'an Gaokai Property Service Management Co., Ltd., with a total transaction price of 0.371 billion yuan.

Tande Co. stated that the equity transfer will help the company focus on its main business, optimize its industry structure, and the proceeds will be used for daily operations.

In addition, German Property Investment Services is expanding the boundaries of property management companies by engaging in construction business. They acquired 100% equity of Sichuan German Green Building, an affiliate of related parties, at a low price of 0.2582 million yuan. Subsequently, they entered into a construction agency agreement with the ultimate controlling shareholder, with an annual limit on related transactions reaching 16.9 million yuan.

Viewpoint Index believes that this may pose greater risks in the real estate sector, as the actual controllers inject better resources into property management companies.

In the secondary market, the Hong Kong property stocks have been performing poorly for three consecutive reporting periods, with an average range decline of 4.74% for the 40 sample companies in this period. Among them, Kwg Living, Xingyue Health Travel, and Riverine China have experienced large declines, all exceeding 17%.

The Viewpoint Index believes that one of the factors affecting the current downturn in property stocks is the public demand for a reduction in property fees, but the main reason is that property companies that have already released their mid-term performance expectations have not brought any surprises to the market.

In addition, although Jinke Services is expected to report a mid-term loss, its performance in the secondary market in this period is impressive, with a rise of 18.89%. The profit warning indicates that the board of directors of Jinke Services has recommended a cash dividend of no less than 60% of the annual shareholder surplus to be distributed in the future. Since the beginning of this year, Jinke Services has used approximately HKD 0.1796 billion to repurchase H-shares, and has promised to continue to repurchase the company's shares at its discretion.

In terms of market cap, Cg Services has slid two places to become the fifth largest property stock in the Hong Kong market, with a total market cap falling below HKD 15 billion. As of August 15, 2024, the closing market cap was HKD 14.676 billion, lagging behind China Res Mixc, Wanwu Cloud, China Ovs Ppt, and Poly Ppt Ser.