Guolian Minsheng Securities: The differentiation between sub-sectors in the social services industry is obvious, and it is preferred to select leading companies with higher certainty in specific segments.

Guolian Minsheng Securities released a research report stating that the valuation, profit expectations, and institutional holdings of the social services sector in 2026 have all fallen to historically low levels, with significant differentiation among sub-industries. Overall, the social services sector is currently in a phase of "weak demand recovery, low expectations, and structural differentiation", with industry valuations and market expectations falling to historically low levels. Taking into account earnings certainty, operational efficiency, cash flow quality, and reasonable growth potential, it is advisable to select leading companies with higher certainty. The main points from Guolian Minsheng Securities are as follows: Sector review: Valuations and market expectations of the social services sector in 2026H1 have fallen to low levels Since 2026, due to factors such as the release of holiday policy dividends, rising travel costs, disruption in consumption pace, and changes in market styles, the valuations, profit expectations, and institutional holdings of the social services industry have all fallen to historically low levels. In terms of stock performance, as of June 15, 2026, the consumer services sector has fallen by 24.93% year-to-date, ranking 30th out of 31 industries and showing a relative return of -30.59% compared to the Shanghai and Shenzhen 300 Index. In terms of institutional holdings, the allocation of social services funds in Q1 2026 was 0.60%, a decrease of 0.06% compared to the previous quarter, with reductions in the tax-free, human resources services, and OTA sectors leading the way. As for performance realization, there is clear differentiation among sub-industries: the OTA and hotel sectors continue to demonstrate operational resilience, the tourism sector maintains year-on-year revenue growth, and the tax-free sales sector is experiencing a recovery; however, the growth rate of the catering and human resources service sectors has slowed down, further increasing the internal differentiation of the sector. Consumption landscape: Overall growth rate slowing down, service consumption more resilient Since 2026, the overall growth rate of social retail sales has been slowing down, with a negative year-on-year growth rate in May, indicating that consumer demand is still facing some pressure. In terms of pace, the year-on-year growth rate of social retail sales has been declining month by month in the first 5 months of the year, indicating a further shift towards a "low-slope recovery" in consumption. In comparison, service consumption has shown more resilience, with a year-on-year growth of 5.4% in service retail sales from January to May 2026, consistently higher than the growth rate of goods retail sales, reflecting a shift in consumer structure from physical goods dominance towards a balance between goods and services. In 2025, the proportion of service consumption in China's resident consumption reached 46.1%, a 3.5% increase from 2020, but still has room for improvement compared to mature economies like the United States, where it accounts for about 70% of resident consumption. With China's per capita GDP exceeding $13,000, service consumption is still in a stage of structural upgrading and long-term expansion. Sub-industry prospects: Policy support gradually visible, structural differentiation continues Since 2026, many regions nationwide have been exploring and implementing the system of spring and autumn vacations for primary and secondary schools, which is expected to smooth out-season tourism demand and stimulate service consumption incrementally through staggered travel, local leisure consumption, and other scenarios. Looking at sub-industries: 1) The hotel sector continues to show a trend of marginal improvement in supply and demand, with a slower growth rate in supply combined with the catalysis of the summer peak season, RevPAR is expected to maintain positive growth, suggesting opportunities to allocate to the industry; 2) The catering sector overall continues a weak recovery, but due to changes in dining and delivery structures and the impact of brand lifecycles, there is an intensifying differentiation in same-store performance, suggesting a focus on leading chain restaurants with outstanding operational capability, stable cash flow, and dividend-paying ability; 3) Since September 2025, tax-free sales on Hainan Island have turned positive year-on-year and continued to recover, combined with the rebound in high-end consumption and policy optimization, suggesting opportunities to focus on the low-level recovery of tax-free industry leaders; 4) The tourism sector is shifting from overall recovery to structural differentiation, with OTAs, inbound and outbound travel chains, and quality destinations showing relative prosperity, suggesting a focus on companies with upgraded performance expectations that benefit from inbound tourism and have scarce resources; 5) The human resources services sector is still at the bottoming stage, with no substantial improvement in recruitment demand yet, but platform-type leaders have stronger operational resilience, suggesting continued monitoring. Risk warnings: 1) Risk of slowing macroeconomic growth; 2) Risk of consumer recovery falling short of expectations; 3) Risk of intensified market competition exceeding expectations; 4) Risk of new market development falling short of expectations.