Orient: Maintains "Buy" rating on POLY PPT SER (06049), target price adjusted to HK$38.50

Orient released a research report maintaining a "Buy" rating on POLY PPT SER (06049), with the target price adjusted to HK$38.50 from the previous target price of HK$42.08. The bank expects the company's EPS for 2026-2028 to be RMB 3.01/3.11/3.25, compared with the previous forecast of RMB 2.94 for 2026; it expects net profit attributable to shareholders to grow by 7.5%, 3.4%, and 4.6% respectively in 2026-2028. Leveraging its central SOE brand and nationwide service network, the company is expanding third-party and non-residential businesses, and lean management and optimization of the value-added business structure are expected to support steady profit growth. With reference to the average PE of comparable companies in 2026 of approximately 11x, the corresponding target price is HK$38.50, calculated at HK$1 to RMB 0.85974. Orient's main views are as follows: The core property management business grows steadily, with third-party and non-residential expansion accelerating The company released its 2026 interim report. In the first half of 2026, it achieved operating revenue of RMB 8.829 billion, up 5.2% year on year; net profit attributable to shareholders of RMB 933 million, up 4.8% year on year; and basic earnings per share of RMB 1.691, up 4.5% year on year. During the reporting period, property management service revenue was RMB 7.080 billion, up 11.9% year on year; among this, third-party project revenue was RMB 3.290 billion, up 18.4% year on year, accounting for 46.5% of property management revenue. Revenue from commercial and office, public, and other property management grew by 21.8% and 14.7% respectively. The annualized contract value of newly expanded third-party projects was RMB 1.406 billion, with projects in the core 50 cities and projects worth more than RMB 10 million accounting for 80.8% and 55.1% respectively, indicating continuous improvement in project expansion quality. Value-added businesses proactively adjust structure, with profitability quality improving During the reporting period, community value-added service revenue fell 14.4% year on year, but the gross margin rose 6.85 percentage points to 46.78%, showing the effect of exiting low-margin businesses; non-owner value-added service revenue fell 16.7% year on year, mainly affected by the contraction in sales office assistance and office leasing, while the gross margin rose 1.57 percentage points to 12.78%. New businesses such as home renovation and energy management are gradually being cultivated and are expected to support the stabilization of value-added businesses. Lean management results emerge, and expense optimization releases profit space During the reporting period, administrative expenses fell 2.0% year on year to RMB 436 million, and the administrative expense ratio decreased from about 5.3% to 4.9%. Regional integration, district-based management, centralized procurement, and digitalization continued to advance. The bank expects the management expense ratio to fall to 5.0% in 2026 and the community value-added gross margin to rise to 46.8%, continuing at that level in 2027, with fee reduction and business structure improvement supporting profitability. Cash reserves are ample, while collection and cash flow performance still need improvement Cash and bank balances at period-end were RMB 12.337 billion; net cash outflow from operating activities in the first half was RMB 482 million, compared with a net outflow of RMB 200 million in the same period last year, mainly affected by an increase in receivables and the pace of payments. The bank pointed out that the company's net profit attributable to shareholders rose 4.8% year on year in the first half, third-party property management revenue grew 18.4% with its share rising to 46.5%, and the contribution from market-oriented projects increased, reducing dependence on the affiliated developer. Risk warning: slowdown in third-party project expansion, operating performance of affiliated companies falling short of expectations, and a downturn in property sales.