Orient Securities has issued a research report maintaining its "Buy" rating on Poly Property Services (06049), while adjusting its target price to HK$38.50 from the previous HK$42.08.

The brokerage forecasts the company's earnings per share for 2026-2028 to be 3.01, 3.11, and 3.25 yuan, compared with its earlier projection of 2.94 yuan for 2026. It expects net profit attributable to shareholders to grow by 7.5%, 3.4%, and 4.6% respectively over 2026-2028.

Leveraging its state-owned enterprise brand and nationwide service network, the company is expanding third-party and non-residential businesses. Lean management and an optimized value-added business structure are expected to support steady profit growth. Referring to the average PE of comparable companies at approximately 11 times for 2026, the corresponding target price is HK$38.50, based on an exchange rate of 1 Hong Kong dollar to 0.85974 yuan.

Core property management business grows steadily, third-party and non-residential expansion accelerates

The company released its 2026 interim report. In the first half of 2026, it achieved operating revenue of 8.829 billion yuan, up 5.2% year-on-year; net profit attributable to shareholders was 933 million yuan, up 4.8% year-on-year; basic earnings per share were 1.691 yuan, up 4.5% year-on-year.

During the reporting period, property management service revenue was 7.080 billion yuan, up 11.9% year-on-year; of this, third-party project revenue was 3.290 billion yuan, up 18.4% year-on-year, accounting for 46.5% of property management revenue. Revenue from commercial and office, public, and other property management services grew by 21.8% and 14.7% respectively.

Newly expanded third-party single-year contract value reached 1.406 billion yuan, with projects in the core 50 cities and those worth over 10 million yuan accounting for 80.8% and 55.1% respectively, indicating continuous improvement in project expansion quality.

Value-added business proactively adjusts structure, profit quality improves

During the reporting period, community value-added service revenue fell 14.4% year-on-year, but gross margin rose 6.85 percentage points to 46.78%, reflecting the effect of exiting low-margin businesses. Non-owner value-added service revenue dropped 16.7% year-on-year, mainly due to contraction in sales office assistance and office leasing, while gross margin increased 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 services.

Lean management yields results, expense optimization releases profit space

During the reporting period, administrative expenses fell 2.0% year-on-year to 436 million yuan, with the administrative expense ratio dropping from about 5.3% to 4.9%. Regional integration, area-based management, centralized procurement, and digitalization continue to advance. The brokerage expects the management expense ratio to fall to 5.0% in 2026 and the community value-added gross margin to rise to 46.8%, sustaining that level in 2027, with cost reduction and business structure improvement supporting profitability.

Ample cash reserves, but collection and cash flow performance still need improvement

Cash and bank balances at period-end were 12.337 billion yuan. Net cash outflow from operating activities in the first half was 482 million yuan, compared with a net outflow of 200 million yuan in the same period last year, mainly affected by an increase in receivables and payment timing. The brokerage noted that the company's net profit attributable to shareholders grew 4.8% year-on-year in the first half, third-party property management revenue rose 18.4% with its share rising to 46.5%, and the contribution from market-oriented projects increased, reducing reliance on the affiliated developer.

Risk warnings: slower expansion of third-party projects, underperformance of affiliated companies, and a downturn in property sales.