SHIMAO SERVICES (00873) Mid-term Performance Insight: Lean Management Lays the Foundation, Technology and Diversity Drive Value Transformation in Tandem

On August 28, SHIMAO SERVICES (00873) presented its mid-term performance report for 2026. During the period, the company achieved revenue of 3.35 billion yuan and a gross profit of 452 million yuan; by the end of the period, the managed gross floor area reached 190.2 million square meters, with a contracted area of 306.5 million square meters. Additionally, the company's cash and cash equivalents amounted to 3.131 billion yuan, with interest-bearing debts maintained at a low level, indicating a solid financial foundation. Executive Director and CEO Jiang Lifeng mentioned the "essence of business" during the performance meeting, highlighting the search for a single unchanging anchor amid all the variables, signaling that SHIMAO SERVICES is actively abandoning its previous blind "scale worship" approach and fully committing to a high-quality development path oriented towards "strengthening and optimizing." Against the backdrop of a deep adjustment in the macro economy and real estate industry, the property sector is undergoing unprecedented growing pains. The ceiling of the incremental market is becoming apparent, competition in the existing stock is intensifying, and overall industry growth is slowing down. In the face of this complex situation, SHIMAO SERVICES has chosen not to pursue blind expansion or seek flashy short-term numbers on financial statements but instead has opted for a more challenging yet resilient path: from reshaping operations focused on cash flow and profits, to exploring business driven by quality and diversity, and to a forward-looking layout powered by AI. SHIMAO SERVICES is attempting an internal "transformation exploration" to build core capabilities for the long-term survival and development of the company amidst the challenges of existing stock competition. Operational foundation reconstruction: Actively adjusting project structure to anchor dual-driven cash flow and profit As the property industry shifts from incremental expansion to stock competition in the macro cycle, the valuation logic for property companies is undergoing profound reconstruction. The capital market's pricing anchor has shifted from simply "managed area growth" to "profit quality and cash flow certainty." SHIMAO SERVICES' mid-term results for 2026 demonstrate strategic resilience, undoubtedly serving as an important prerequisite for maintaining financial health in line with the cycle. In response to this shift in valuation logic, the company has established a business axis driven by "cash flow and profit" through proactive adjustments in project structure. This means the company is shifting from a pursuit of absolute scale expansion to a focus on the health and sustainability of growth. The company adheres to the principle of "measured entry and exit, dynamic assessment," and when expanding new projects, it no longer blindly pursues growth in area figures but prioritizes core indicators such as project repayment cycles and collection rate expectations as admission criteria. At the same time, for existing projects, the company conducts regular dynamic evaluations, decisively dealing with low-quality and low-yield "bleeding point" projects, firmly withdrawing from long-term loss-making contracts or those that cannot contribute positive cash flow, effectively avoiding goodwill impairment risks associated with blind mergers and acquisitions during the industry downturn, thereby establishing a solid firewall for asset quality. Between exiting and entering, SHIMAO SERVICES has reshaped its project foundation, and the positive signals from structural optimization have begun to emerge. The managed residential area has reached 138 million square meters, growing against the trend by 1.0%, with its proportion rising from 61.6% to 72.7%; simultaneously, over 76% of the projects are located in China's key urban centers. This indicates that area has taken a back seat, and revenue-generating capability per project and portfolio profit quality are becoming new value anchors. Based on a clear direction for structural adjustments, the company further implements cash flow and profit orientation through a lean management system. On one hand, the company has built a business closed loop covering the entire project life cycle, controlling the inflow and outflow of funds throughout the process from budget preparation, tracking, to review assessment; on the other hand, the company deepens penetrating management and organizational process reengineering, achieving decision-making that reaches the frontline by decentralizing assessment units and streamlining management levels. At the project level, the assessment indicators are shifted from solely "revenue achievement rate" to a comprehensive evaluation of "collection rate + profit rate," enhancing the accountability of frontline project managers for the income statement to an unprecedented level; at the headquarters level, the company strictly controls administrative management expenses and seeks the best balance between increasing income and reducing costs through centralized procurement and standardized processes. This top-down lean management approach has ultimately received initial confirmation in the financial fundamentals. As of the end of the period, the company's cash and cash equivalents reached 3.131 billion yuan, maintaining low interest-bearing debts. In the current context of tightening macro liquidity and some industry peers facing liquidity pressures, ample cash positions not only provide a sufficient cushion for navigating industry cycles but also empower the company with strategic initiative and risk resistance in an uncertain environment. Conversion of growth momentum: Deepening service quality and exploring independent self-sustaining capabilities of diversified businesses Building on the reconstruction of a robust operational foundation, SHIMAO SERVICES is aggressively pushing for a deep conversion of growth momentum through a dual drive of "quality + diversity." From the perspective of capital markets, this strategy signifies the company's attempt to expand from the traditional defensive logic of "spatial management" to an offensive logic of "life services and resource operation," attempting to break the limitations of traditional property companies that heavily rely on basic property management for growth. To achieve this logical transformation, high-quality basic services are indispensable. Therefore, in the meticulous management of service quality, SHIMAO SERVICES is committed to transforming "service standards" into "stable delivery at the frontline." The company is promoting quality upgrades comprehensively, establishing benchmark "star projects," and improving the closed-loop mechanism for customer feedback and external evaluations. The ultimate goal of these "painstaking efforts" is to enhance customer stickiness, thereby ensuring the collection rate of property fees and project renewal rates, securing a long-term and stable cash flow base for subsequent diversification explorations. After stabilizing its foundation, SHIMAO SERVICES began seeking new growth engines in diversified business areas. In the first half of the year, the company reported community value-added service revenue of 551 million yuan, with revenues from community asset management, elderly care services, and new retail growing by 22.7%, 15.2%, and 68.8%, respectively. Through these high-growth figures, we see a shift in the company's underlying business logicmoving from past "traffic monetization" to deeper "demand excavation." In terms of specific execution measures, this shift is particularly noteworthy. The company has chosen not to adopt the past "big and all-encompassing" sprawling model but rather focuses on high-certainty new consumer windows such as "elderly care, childcare, and pet services," digging deep into community existing resources. For instance, in its asset management business, the company is not merely acting as a housing intermediary but is utilizing its familiarity with the community situation to provide in-depth asset management and operation services; in elderly care services, the company uses community scenarios to bridge the service chain of "property + elderly care"; in new retail business, the company employs direct procurement and supply chain optimization to reduce intermediaries and directly offer high-cost performance products to owners. Management emphasized during the earnings meeting that diversified businesses must find the "true needs" and "pain points" of customers, and the assessment logic has begun to focus on their independent profitability. This value creation based on the genuine needs of customers over their entire life cycle is gradually establishing a sustainable secondary growth curve with independent self-sustaining capabilities. Technological paradigm innovation: Deepening digital transformation and empowering high-quality development through AI If lean management and diversified expansion are tactical adjustments to cope with the present, then the comprehensive embrace of AI represents SHIMAO SERVICES' long-term layout for the future. The traditional property industry has long been constrained by a "labor-intensive" business model, where marginal costs are difficult to decrease effectively, and high labor costs often erode slim profits. For this reason, SHIMAO SERVICES is conducting an in-depth exploration of "productivity reconstruction" by perfecting its technological framework and data foundation. In this strategic blueprint, the most direct breakthrough lies in cost reduction through technology. Currently, SHIMAO SERVICES is advancing the full-chain implementation of AI. For example, the gradual deployment of all-scenario smart service products has directly replaced some repetitive front and back-office tasks, driving down labor and management costs. At the same time, the company intelligently controls project energy consumption through big data analysis, effectively reducing utility costs; in the engineering maintenance sector, it utilizes intelligent inspection systems to replace traditional manual patrols, improving the precision of facility maintenance. This "cost reduction without production reduction" through technology not only breaks the rigid cost constraints of traditional property companies but also practically releases considerable elastic space for profit statements. Beyond cost reduction, the deeper value of technology empowerment lies in driving the upgrade of management paradigms. SHIMAO SERVICES is making attempts to transition from experience-based management to precise control. The company actively promotes the deep integration of digital platforms and smart hardware in frontline scenarios, enabling the management team to comprehensively grasp operational data and service order processing conditions of various projects in real-time, thus reducing hierarchical losses in information transmission. At the same time, the AI intelligent scheduling system can autonomously allocate tasks based on the urgency of work orders and the real-time location of personnel, significantly improving frontline response efficiency. Although these AI explorations are still in the stage of application deepening and validation, SHIMAO SERVICES is gradually transforming a large managed area into data assets that can be intelligently operated, not only reconstructing the current cost structure but also paving the way for building core competitiveness in the digital age. In summary, from focusing on cash flow and profit restructuring, to exploring driven by quality and diversity, and finally to forward-looking layouts powered by AI, SHIMAO SERVICES' mid-term results for 2026 demonstrate its strategic resilience and pragmatic style during a critical turning point in the industry. In the era of existing stock, scale remains a source of competitiveness, but only high-quality scale can sustainable value. SHIMAO SERVICES is steadily advancing into a new stage focused on operational efficiency, with genuine profits and cash flow as its foundation, through low-key and solid initiatives. This transformation exploration and capability building are fundamentally ensuring its stable and enduring footing in future industry competition.