Morgan Stanley expects Chinese property managers’ earnings to improve in H2, to see revaluation

 

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The market has refocused on Chinese property management firms’ core business operations and cash flow after the sector’s first-half earnings results, Morgan Stanley said in a note.

After the delinking with their parent property developers, property manager’ earnings are expected to improve and their valuation will be reassessed, said the broker.

Rated property managers’ first-half core profits fell by an average of 9% on year in the first half, with that of state-owned firms rising 29%, while private companies sliding 34%, it said, adding that the first phase of profit reset is believed to be close to an end with limited room downside. In the worst scenario, the sector’s profit will decline by only 12% this year, it estimated. 

While the sector continues to reshuffle, property managers are shifting their development strategy from scale to profitability and cash flow, focusing on the development of core property management and value-added services business in core cities, it said.

The sector’s profit is expected to turn around in the second half of the year and their annual profit is estimated to grow by 4%, 16% and 13% in 2023 – 2025, with the top picks being China Resources Mixc Lifestyle, Poly Property Services, and China Overseas Property, it said. Morgan Stanley is also optimistic that Onewo will see a faster-than-expected turnaround in its profit .