GF Securities: Dividend value highlighted, mid-term dividend in property management industry higher than 23 full year.

GF SEC released a research report stating that the dividend performance in mid-2024 has further improved, with the average dividend payout ratio of traditional property management companies reaching 73.4%, higher than the 51.7% for the full year of 2023 and the 36% for the same period last year. Based on the current stock price and the estimated profit scale for 2024, the average dividend yield is 7.2%, with significant dividend value highlighted. Relevant stocks mentioned include CHINA RES LAND (01109), BINJIANG SER (03316), YUEXIU SERVICES (06626), ES SERVICES (01995), Huarun Wansheng (01209), CHINA OVS PPT (02669). The main points of GF SEC are as follows: Profit analysis: Slow growth, impairment affects sector performance In the first half of 2024, major property management companies achieved operating income of 123.5 billion yuan, a year-on-year increase of 6.9%, with a continued decline in revenue growth over the past four years. The gross profit scale reached 24.8 billion yuan, a year-on-year decrease of 0.5%, with an overall gross profit margin of 20.1%, down 1.5 percentage points from the same period last year (a decrease of 6.9% year-on-year). The core operating profit scale of the sector was 15.5 billion yuan, down 1.9% year-on-year, with management and selling expenses totaling 9.4 billion yuan and a management sales fee rate of 7.6%, down 0.4 percentage points from the same period last year, showing an overall improvement in fee rate level. The net profit attributable to shareholders of the sector was 7.2 billion yuan, a year-on-year decrease of 37.5%, with a net profit margin of 5.8%, down 4.2 percentage points from the same period last year, representing a decrease of 42%. Impairment and other non-recurring gains and losses of credit and related party receivables were the main reasons for the income growth but profit decrease of the sector in the first half of this year. Balance sheet analysis: Concerns over deteriorating collection performance For the sample companies in the property management sector in the first half of 2024, the total asset scale was 331.3 billion yuan, a year-on-year increase of 2.2%, while the total liabilities scale grew by 4.1% year-on-year, net asset scale grew by 0.5% year-on-year, and net assets attributable to shareholders grew by 0.2% year-on-year. The trade receivables of the sector reached 74.6 billion in the first half of 2024, a 7.2% increase from the same period last year, and an 18.3% increase from the end of 2023. In the first half of this year, amidst significantly declining economic environment and government payment ability, the pressure on accounts receivable of property management companies has significantly increased. In the future, under the circumstances of the slowing growth, how to ensure the quality of collections poses a huge challenge. In terms of accounts receivable quality in the first half of this year, the collection quality of CHINA RES LAND (01109), BINJIANG SER (03316), YUEXIU SERVICES (06626), ES SERVICES (01995) is relatively good. Operating situation analysis: Slowdown in scale growth, seeking new opportunities In the past two years, the most stable growth contribution of property management companies has come from the incremental growth of basic property management, with different companies seeking new business contributions, the contraction of non-owner value-added services, and the weakening elasticity of community value-added services. Basic property management grew by 10.8% year-on-year in the first half of 2024, with a growth rate 3 percentage points lower than the full year of 2023, slowing down in contract and managed area expansion. It is expected that the industry's growth center will be around 5% in the future, with top-tier companies able to maintain about 15% growth. Non-owner value-added services decreased by 20.3%, with a 17% decrease in gross profit. Owner value-added income was 12.67 billion yuan, a year-on-year increase of only 0.7%, compared to 4.1% growth in the same period in 2023. Among the companies, BINJIANG SER, YUEXIU SERVICES, Huarun Wansheng (01209), CHINA OVS PPT (02669) showed better performance. Risk warning: The fundamental performance of the property management industry in the future may not meet expectations, industry profit margins may decline, and the ability to generate new income and expand business may weaken; the industry's collection capacity is affected by the deterioration of government, residents, and businesses' cash flow, resulting in an increase in accounts receivable size and a decrease in cash security multiples.