According to the Zhitong Finance APP, CITIC Securities has released a research report stating that the property service industry will face multiple challenges in 2024, including increased delivery uncertainty, heightened receivables pressure, greater expansion difficulties, and a decline in value-added services. Nevertheless, it is expected that the sector can still achieve year-on-year positive growth in net profit and net cash inflow in 2024. Transactions with related parties have stabilized, while the collection rate from third parties is expected to bottom out in 2025, leading to a significant increase in corporate dividend willingness. It is anticipated that the current sector corresponds to a dividend yield of 6.0% for 2024, and the current sector's valuation is at the 15th percentile over the past three years, indicating that the sector's valuation is at a historical bottom in a long cycle.
<h2>CITIC Securities' main viewpoints are as follows:</h2>
Outlook 1: Increased uncertainty in the conversion of previous property service contracts, with a rise in unsold completed projects and falling housing prices as major challenges, leading the firm to expect the importance of new housing expansion to continue to decline.
The increase in the proportion of unsold completed projects results in property service companies charging a significant amount from developers after new housing delivery, thereby increasing the receivables risk for property service enterprises. The proportion of completed products (existing homes) in the inventory of sample companies is expected to reach 22% by mid-2024 (compared to 13% in the first half of 2022), and this is expected to continue to rise.
Falling housing prices also increase the difficulty of satisfying customers with property services and may lower the pricing of new housing property fees. Additionally, the slowdown in new housing development progress reduces the conversion speed of reserve projects. Overall, the impact of newly completed projects on revenue growth and profit contribution has diminished.
Outlook 2: The cyclical test of non-residential business is nearing the bottom, and companies are raising expansion standards to ensure contract quality.
In 2024, non-residential property services will face dual challenges of declining demand and slowing collections, exposing the relative instability of contracts and their susceptibility to economic cycles. However, property service companies are actively raising standards to avoid a sharp deterioration in receivables, focusing on high-quality, large-scale non-residential property service contracts, and comprehensively weighing profitability and collection difficulty indicators.
Outlook 3: The importance of expanding existing residential properties continues to rise, with a few companies cultivating external expansion capabilities.
With the total amount of new housing expansion declining and risks increasing, the cyclical nature of non-residential contracts is stronger than that of residential property contracts, making the expansion of existing residential properties increasingly important. However, only a few companies, such as WanWuYun and Greentown Service, have mastered the skills for large-scale external expansion of existing homes and are adept at overcoming operational management challenges such as aging facilities in older buildings. The firm believes that by 2025, the proportion of external expansion from existing residential properties is still expected to increase, but structural differentiation among different companies will become more pronounced.
Outlook 4: Companies continue to wage a tough battle for debt collection, with receivables risk transitioning from full exposure to gradual resolution.
In 2024, debts owed by related parties will be somewhat controlled, and corporate independence will improve. However, the collection rate from third parties has declined to varying degrees, and the willingness or ability of residents, governments, and enterprises to pay has decreased. In 2024, the firm expects that most property service companies can achieve positive operating cash flow, but only a few companies will be able to achieve net operating cash inflow exceeding the annual net profit
In 2025, the bank expects that efforts to improve occupancy rates and customer satisfaction will become more refined, and the experience in corporate debt collection and advance payments will also be richer. It is anticipated that the industry's collection rate may bottom out and rebound.
Outlook Five: Large-scale project exits are nearing an end.
In the past two years, many companies have experienced large-scale project exits, mainly due to the poor quality of some merger and acquisition targets, slow delivery of new homes or low occupancy rates, difficulties in collecting from existing projects, or losses. Although exiting these projects has a negative impact on the scale of the company, it has improved the quality of profits and cash flow.
The bank expects that after the project exits over the past two years, the current contract quality of companies has significantly improved, and the issues left over from the merger and acquisition boom are also nearing resolution.
Outlook Six: Property service companies have cost security, and the gross profit margin of basic services is generally stable, with individual fluctuations.
The cost side changes of property service companies are slow variables, and it is difficult to see significant increases in a low-inflation environment. Labor cost increases are relatively limited, and technological empowerment continues to optimize work interfaces and improve work efficiency.
Some companies actively achieve significant results through management efficiency improvements, which may lead to an increase in gross profit margins. Individual property companies may bear the residual issues from the delivery of development companies, which may lead to a decline in the profit margin of basic services. Overall, the profitability of the industry's basic services is highly stable and will not decline as the age of properties increases.
Outlook Seven: Value-added services are transitioning from a sharp decline to a year of cooperation.
Compared to basic property services, value-added services for owners are optional consumption and are more affected by economic cycles. Businesses based on community public spaces, such as advertising media, continue to decline due to economic cycles and the inefficiency of service providers; businesses based on user trust, such as retail goods, may continue to decline due to economic cycles and insufficient core capabilities; sales of remaining units and parking spaces are also affected by the downturn in the real estate market.
Non-owner value-added services are affected by the downturn in development prosperity, and due to the lack of core competitiveness in the development chain, the bank expects that this business will generally see a continuous decline in revenue and profits.
Overall, in 2024, the profitability of value-added services for property service companies may experience negative growth. In 2025, the bank expects that value-added service units facing development pressures may undergo qualitative changes, including exploring cooperation between different property companies to seek economies of scale.
Outlook Eight: Industrial mergers and acquisitions are still in a downturn, with companies engaging in small but beautiful mergers and expansions.
Leading companies still have ample cash, but historically, the effects of industry mergers and acquisitions have not been good. M&amp;A activities in 2025 may be more active than in 2024, but will still mainly focus on small companies with clear assets and easy due diligence, similar to Zhongzhou Property's recent acquisition by Wanwu Cloud. The valuation in the M&amp;A market has also fallen below the current mainstream company valuations in the secondary market, which has already gained industrial-level attractiveness.
Outlook Nine: Companies are placing more emphasis on investor returns, and the sector's dividend attributes are becoming more prominent.
The bank estimates that the current TTM dividend yield of key covered companies in the sector is 5.8%. Property services have many common characteristics of dividend sectors, such as stable contract pricing, continuous positive cash flow from operations, and low capital expenditures. Company revenues continue to grow with the increase in managed area, and the growth of companies does not rely on capital expenditures, with service contracts existing in a light asset form for the long term
The dividend payout ratio of property service companies has been continuously rising, with room for steady growth. The average dividend payout ratios of leading companies over the past three years were 35%, 40%, and 50%, gradually increasing. Due to the sustained operating cash inflows in the sector and the general lack of capital expenditure needs, the bank expects that the dividend payout ratio still has sustainable improvement potential. The bank anticipates that the average dividend rate for the sector will reach 57% in 2024, with the current stock price corresponding to a sector dividend yield of 6.0%. In 2025, the sector is expected to continue maintaining a high dividend distribution policy, with total dividends expected to increase compared to 2024.
Outlook Ten: Property service company valuations have reached a long-term cyclical bottom.
Whether it is the bad debts dragged down by real estate development companies or the decline in collection rates affected by the economic cycle, a significant turning point may be reached in 2025. The stable revenue scale and profitability of property service companies may be more prominently reflected. Moreover, the industry has bid farewell to the historical ailments of heavy financing, numerous mergers and acquisitions, and light dividends before 2023, truly entering an era of sustained high dividends akin to cash cow industries.
Currently, the average valuation of property service companies monitored by the bank is at the 15th percentile of the past three years. The bank expects that around the announcement of the 2024 annual report, stimulated by high dividends, there will be significant opportunities for valuation improvement in the sector. The bank recommends the property service industry.
Risk Factors: Risks of the real estate industry downturn exceeding expectations. Risks of dividends falling short of expectations. Risks of collections falling short of expectations. Risks of accounts receivable periods not being effectively controlled

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CITIC Securities released a research report indicating that the property service industry will face multiple challenges in 2024, but it is expected that net profit and net cash inflow will achieve year-on-year positive growth. The current sector valuation has bottomed out, with a projected dividend yield of 6.0%. Key points include: increased uncertainty in property service contract conversion, the non-residential business cycle nearing its bottom, and the growing importance of expanding existing residential properties

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CITIC Securities' Top Ten Property Outlook for 2025: Issues Are Being Resolved, Valuations Have Bottomed Out