According to the Wisen Financial APP, the Opinion Index has released the "2024 September Property Service Development Report", pointing out that by the end of August, the mid-year reports disclosed by listed real estate companies showed a continuous slowdown in industry scale and revenue growth, making profits more difficult and increasing the pressure of financial risk control. At the specific business level, influenced by the consumption environment, community value-added services are also under pressure. Innovative businesses have been the focus of exploration by leading or a few key companies in recent years. Looking at the performance of sample companies in the first half of 2024, urban service income differentiation, low gross margin, and facing issues such as declining payment efficiency; smart solution business scale is still small, facing challenges in revenue generation, only the BPaaS solution business of Wanwu Cloud performs well. The IFM business is also facing price competition.

During the reporting period, there was a decrease in market-driven expansion dynamics, with a high proportion of school formats in existing cases. In the first half of the year, the non-residential revenue growth of real estate companies slowed down, mainly due to factors such as poor project quality, professional barriers, and intense competition. In addition, CCCG Real Estate has announced a major property acquisition "drama", intending to acquire all the equity of CCCG Property from related parties, which will help improve asset quality and profitability for CCCG Real Estate, which reported a loss of 0.983 billion yuan in the first half of the year.

The slowdown in scale growth, coupled with continued poor profitability.

As of the end of August, except for Risen Living Services and Jiayuan Services, 66 listed real estate companies have already published their interim performance reports, the situation of difficult mid-term reporting has improved compared to previous periods, but overall indicators reflect that the industry is facing greater challenges in the first half of the year, with continuous slowdown in scale and revenue growth, lackluster performance in net profit, and increasing pressure on financial risk control.

In terms of specifics, the managed construction area announced by 56 listed property companies is approximately 7.82 billion square meters, an increase of approximately 0.315 billion square meters compared to the end of 2023, with a growth rate of only 4.22%. There are a total of 10 property companies with a decrease in managed area, accounting for 17.86%. Jinke Services, Colour Life, Shimao Services, and A-Living Services saw a decrease in the managed area by more than 10 million square meters compared to the end of 2023. This is mainly due to the decline in the real estate market in the property management industry, resulting in a contraction in the incremental market and intensified competition in the existing stock. At the same time, companies are gradually returning to the core of quality service, focusing on project conversion and quality, and focusing on deep cultivation of high-energy cities or advantageous regions, so the scale growth is maintained at a low speed.

The reserved area of the industry leaders (14 property companies with managed area greater than 0.1 billion square meters and announced contracted area) decreased by 11.45% year-on-year from 2.516 billion square meters at the mid-point of 2023 to 2.228 billion square meters in this period, affecting the growth potential of the scale, but the reserved area of the leaders still leads by a large margin, accounting for 85.6% of the total reserved area, and there is a trend of further concentration in the industry.

The revenue growth rate continues to decline, with an average revenue growth rate of 6.63% for 64 listed property companies, a decrease of 2.47 percentage points from the same period of 2023 (9.1% growth rate). There are only 10 listed property companies with revenue exceeding 4 billion yuan, accounting for 15.6%; and nearly 50 companies with revenue less than 2 billion yuan, accounting for 76.56%. In the first half of 2024, only CG Services and Vanke Cloud had revenue exceeding 10 billion yuan.

From the performance reports of various companies, basic property management services, which serve as the ballast stone, have shown weak growth this period. Under the consumption downgrade and market competition, community value-added services are under pressure to decline. Non-owners value-added services are still being constrained. In addition, some property companies' innovative businesses that have ramped up in recent years, such as urban services and smart technology services, are also experiencing a downward trend in revenue.

The profit situation of companies continues to be poor. The net profit of the 64 listed property companies in the first half of 2024 totaled 8.82 billion yuan, with an average growth rate of -17.82%; the average gross profit margin decreased by 1.57 percentage points to 23.41% compared to the same period last year, and the average net profit margin decreased by 2.14 percentage points to 7.13%. Six companies recorded losses, with A-Living Services, Jinke Services, and Sunac Services reporting losses of 1.532 billion yuan, 0.472 billion yuan, and 0.194 billion yuan, respectively. Among the industry leaders, only China Resources Mixc and Greentown Services maintained a year-on-year growth in net profit of over 20%.

Currently, indicators including the impairment of financial assets such as accounts receivable and goodwill still have a significant impact, and some property companies have made significant provisions for impairment leading to losses. For example, A-Living Services stated that the credit risk of its related-party customers has increased, and the period recorded a significant impairment loss and other business segments have been affected by the economic environment and the improvement of service quality, resulting in pressure on profits.

According to the statistics of the point index, the total amount of accounts receivable (after impairment provision) of 64 property enterprises as of June 30, 2024 is approximately 96.86 billion yuan, an increase of 17.8% from the end of 2023, continuing to rise; the impairment provision for trade receivables has increased by 26.12% to 26.257 billion yuan since the end of 2023, indicating an increase in financial risk. The reasons include both the incremental impact brought about by the growth of the industry and the impact of the settlement cycle of accounts receivable. It also includes the lengthening of the payment cycle for some property enterprise customers or difficulties in collecting property fees, such as CG Services, which has established a special committee to recover outstanding debts for risky customers.

Overall, in the first half of 2024, the property industry is in a slow growth period due to the downward impact of the macro environment and the real estate market, and the phenomenon of increasing revenue without increasing profit is more severe than in the past. Community value-added services are also facing challenges, and the difficulty of collecting property fees further increases the financial burden on enterprises.

In addition, some property enterprises, under a prudent strategy, focus on high-energy urban clusters, increase the service density of high-quality projects, explore value-added services, and demonstrate certain competitive advantages.

Differentiation in urban service income, IFM prices are starting to 'internalize'.

The interim report is also a window to observe innovative businesses of property enterprises. Such businesses have better profitability and payment situation, and can be linked with basic property services. They have become the focus of exploration by leading or a few key enterprises in recent years, including urban services, IFM business, commercial operations, and smart solutions.

From the perspective of sample enterprises, the overall scale of urban service revenue is growing, but there is a low gross margin and income differentiation.

In the first half of 2024, CG Services had the highest urban service revenue, reaching 2.17 billion yuan, but the revenue showed a declining trend. New Dazheng had the fastest growth in urban service revenue, with a year-on-year increase of 53.11%; while Yongsheng Services saw a sharp decline of 28.50% in revenue. In terms of gross margin, Sunac Services had the highest at 20.3%, and Wanwuyun had the lowest at 8.9%, which is below the average gross margin of property enterprises in this period of 23.41%.

According to the announcement, the growth of the new Dazheng's business is mainly benefited from its revenue.MergerStarting in 2022, it cultivated urban services as a new business growth point and acquired Sichuan and Xiang to complete the business elements of the urban services sector. In this period, the company seeks to expand the municipal environmental sanitation market through joint ventures, cooperation, and mergers and acquisitions, based on internal development.

Currently, this business is affected by the economic environment and faces problems such as a decline in repayment efficiency. The company is optimizing and adjusting project layouts, focusing resources on economically developed areas and high-quality projects, and actively replacing project stages. According to Yongsheng Services, a strategy of reallocating resources was adopted during this period to exit some low-profit businesses to improve efficiency.

The revenue of the smart solutions business is difficult to generate due to its focus on real estate developers and their upstream and downstream industry chains. Currently, only a few leading companies have the ability to export, and their revenue share is relatively small. This reflects that digitization mainly affects Wuye Enterprises in terms of cost reduction, efficiency improvement, enhancing profitability, and deepening business integration to provide diversified value-added services.

Among the sample companies, revenue from the AIoT solution business of Wanwuyun in the first half of 2024 decreased by 10% year-on-year to 0.603 billion yuan; revenue from the technology service business of Greentown Services decreased by 25.5% year-on-year to 0.159 billion yuan; revenue from the smart technology service of Jinke Services decreased by 43.9% year-on-year to 0.018 billion yuan. It is reported that Jinke Services has continued to phase out business such as smart sales centers, smart solutions, and software development for real estate developers and corporate customers facing difficulties in repayment.

The BPaaS solution business of Wanwuyun is quite special. This year, it has added customers including leading AI companies, large pharmaceutical companies, and well-known communication companies. It has been implemented in 29 projects in various cities, with a year-on-year revenue growth of 22% to 0.789 billion yuan in the first half of the year. This business mainly includes two parts: remote enterprise operation services to support non-core business processes of corporate customers, and remote space operation services mainly to provide technical system support for various city service projects.

In fact, the IFM (Integrated Facility Management) business can better demonstrate the professional service capabilities of the real estate industry. Specifically, it starts from the customer demand side, helps improve production efficiency and reduce operating costs, provides custom service lists, and offers comprehensive solutions.

Based on the revenue and new contract situation of the sample enterprise Wanwu Lianghang in the first half of 2024, the IFM business still has good growth. Data shows that Wanwu Cloud's property and facility management service revenue in the first half of the year is about 4.8 billion yuan, a year-on-year growth of 20.8%; as of June 30, 2024, the saturated revenue of managed properties and facility management service projects is 14.311 billion yuan, with the Integrated Facility Management Service project accounting for 7.541 billion yuan, a year-on-year growth of 51%.

However, the announcement also mentioned that under the pressure of external environment, the company has proactively adjusted its customer structure. The management also indicated that in order to seek new growth drivers, various participants have entered the IFM field with the low-threshold approach of labor outsourcing, which has led to the "internal competition" in the pricing of the IFM field.

Non-residential revenue growth slows down, CCCG Real Estate previews acquisition drama.

During the reporting period, there was a reduction in the disclosure of market expansion dynamics by real estate companies. Specifically, at the project level, there were more projects related to the university sector. Among the companies of concern, China Merchants Property Operation & Service announced on its official WeChat account on August 30 that it continues to make efforts in the university sector and has successively won bids for 5 projects including Guangzhou Academy of Fine Arts, Guangdong University of Finance and Economics, and Henan University of Finance and Economics, further expanding its presence in the university sector.

According to the interim report, the contract amount for non-residential sectors of China Merchants Property Operation & Service decreased by 0.98% to 1.638 billion yuan in the first half of this year. As of June 30, 2024, the managed area for non-residential sectors is approximately 250 million square meters, accounting for 65.6% of the total managed area, of which the managed area for the university sector is approximately 27.746 million square meters, an increase of 7.26 million square meters compared to the mid-2023. Actually, this year, although real estate companies have diversified their expansion in non-residential sectors, there have been cases of poor project quality, high requirements for professional capabilities in certain sectors, and increasing competition, resulting in a overall slowdown in non-residential revenue in the industry. Data shows that the average year-on-year growth rate of non-residential sector revenue for 20 sample real estate companies in the first half of 2024 is 5.41%, while the average growth rate of non-residential revenue for the sample companies in 2023 is 14.45%.

The index of perspectives believes that the market prospects for non-residential formats are still very promising, and the source of projects will focus on high-energy regions. Currently, the development capabilities of different-scale physical enterprises have become significantly differentiated. Upper and middle-level physical enterprises have advantages such as resources, expertise, and service experience, and will become the main force in the competition.

In addition, CCCG Real Estate has announced its plan to acquire 100% equity of CCCG Property in the near future through cash payment from related parties.

The Index of Perspectives has learned that CCCG Property was established on December 13, 2022, with a registered capital of 0.3 billion yuan. According to the prospectus for the issuance of medium-term notes in the first quarter of 2024 by CCCG Property, its revenue in 2021, 2022, 2023, and January-March 2024 were 0.171 billion yuan, 0.333 billion yuan, 0.507 billion yuan, and 0.179 billion yuan, respectively. Its gross profit was -0.005 billion yuan, 0.039 billion yuan, 0.102 billion yuan, and 0.034 billion yuan, respectively. Its gross margin was -2.75%, 11.78%, 20.06%, and 18.99%, respectively.

In addition, CCCG Real Estate generated revenue of 8.98 billion yuan in the first half of this year, an increase of 2.48% compared to the same period last year, but it incurred a loss of 0.983 billion yuan. After the transaction is completed, CCCG Real Estate will add property management business and extend the real estate business chain. This is beneficial to the company in improving asset quality and profitability, enhancing risk resistance, and sustaining business operations.

In the secondary market, the performance of Hong Kong-listed property stocks has improved compared to the previous three reporting periods, but the average price-to-earnings ratio (TTM) at the end of the period is still in single digits (6.64 times), indicating low market expectations.

Data shows that the average range increase of the 40 sample physical enterprises in this period is 0.20%, which has increased by 4.94 percentage points compared to the previous period. The main contributors to the increase in range are Yongsheng Services (+24.33%), Dongyuan Renzhi Services (+17.02%), and Greentown Services (+11.43%). The top three decliners are Jingcheng Jiaye (-25.22%), Jianfa Property (-14.59%), and KWG Living (-12.50%).

In terms of market capitalization, the major companies with a significant increase in this period include China Resources Mixc Life (+2.739 billion HKD) and Greentown Services (+1.234 billion HKD). The current total market capitalization of these two companies is 53.411 billion HKD and 11.104 billion HKD, respectively. The significant decliners include Wanyun (-0.968 billion HKD), Poly Property (-0.719 billion HKD), and Jianfa Property (-0.493 billion HKD).

Among them, Wanwu Cloud was included in the Hang Seng Composite Index and entered the Shanghai-Hong Kong Stock Connect on September 9th. This means that A-share investors or institutions can buy and sell Wanwu Cloud stocks through mainland trading platforms, which is conducive to attracting more investors and inflow of funds, and improving its own market liquidity.

At the mid-term earnings conference, the management stated that this is a key battle won by Wanwu Cloud in the capital market recently, and it has decided to increase the special dividend (45%) on the basis of the mid-term dividend payout ratio (55%), with a total dividend payout amounting to 100% of the core net profit of 1.202 billion yuan.