CICC released a research report stating that based on adjustments to CHINA OVS PPT's (02669) segmented business structure and gross margins, the firm has lowered its 2025 and 2026 earnings forecasts by 5% and 6% to RMB 1.60 billion and RMB 1.71 billion respectively (representing year-over-year growth of 6% and 7%). The firm maintains its outperform rating and HK$6.5 target price (corresponding to 12x 2025 P/E ratio, implying 22% upside potential), primarily considering changes in market risk appetite, as the company currently trades at 10x 2025 P/E ratio.

CICC's key viewpoints are as follows:

1H25 Results Slightly Below Market Expectations

The company announced 1H25 results: revenue increased 4% year-over-year to RMB 7.09 billion, with net profit attributable to shareholders growing 4% year-over-year to RMB 770 million, slightly below market expectations, mainly due to declining other income and additional impairment provisions. The company declared an interim dividend of HK$0.1 per share (ordinary dividend of HK$0.09 + special dividend of HK$0.01), representing a payout ratio of 40% (compared to 36% in 2024 and 35% in 1H24).

External Expansion Generally Stable, Portfolio Optimization Maintains Healthy Development

In the first half of 2025, the company's external expansion annual contract value reached approximately RMB 980 million (with urban operations accounting for over 60%), roughly flat compared to the same period last year. The average annual contract value for projects worth over RMB 10 million increased by 17%, indicating steady improvement in external expansion quality. At the end of the first half, managed area increased by a net 5 million square meters compared to end-2024, primarily due to the disposal of 26.8 million square meters in the first half, leading to a slight 0.1 percentage point increase in basic property services gross margin under the lump-sum system to 13.6%.

Value-Added Services Face Overall Pressure, Asset Operations and Engineering Services Show Resilience

In the first half of 2025, both residential and non-residential value-added services revenue declined to varying degrees, mainly due to overall environmental impacts. For residential value-added services, revenue fell 12% year-over-year to RMB 610 million, with community asset operation services such as property rental and sales growing 6% year-over-year, while home living services and commercial operations revenue declined 26% year-over-year. On the non-residential value-added services side, pre-delivery inspection services closely related to the real estate industry dragged down overall revenue growth, while engineering services revenue maintained double-digit growth.

Comprehensive Collection Rate Slightly Improved, Account Management Remains Healthy

The firm estimates that 1H25 comprehensive collection rate improved slightly year-over-year, with current year collection rate rising year-over-year while prior period collection rate declined slightly. Trade receivables gross value increased 1% year-over-year, below the first half revenue growth rate.

Second Half Operating Trends Expected to Remain Stable with Potential Slight Improvement

The company faced operational pressure in the first half, but looking ahead to the second half, the firm expects potential slight improvement: on one hand, after concentrated project disposals over the past year and a half, the scale of inefficient projects has returned to reasonable levels, with marginal reduction in future disposal pressure; on the other hand, for residential value-added services, the company has increased efforts and business coverage in asset operation services and certain home living services, which is expected to provide some support for second half business progress.

Risk Factors: Value-added business development falling short of expectations, project expansion results or front-end profit margins not meeting expectations.