Orient Securities has released a report stating that the fundamental recovery of the social services sector remains slow. Although demand for travel and tourism has gradually rebounded since 2025, overall consumer spending power remains weak, leading to relatively cautious market expectations regarding the sector's profit elasticity. Allocation concentration remains high, with the "top-heavy" trend continuing. The sector is in a bottoming-out recovery phase, with opportunities seen in three main directions: policy-driven initiatives, holiday-related performance, and demand certainty. The firm recommends a strategy of "building positions at the bottom, focusing on industry leaders, and seizing structural opportunities." Key points from Orient Securities are as follows:
The allocation weight of the social services sector remains low but saw a slight increase in Q1 2026. The sector's allocation ratio edged up by 0.02 percentage points quarter-over-quarter to 0.28% in Q1 2026, yet overall it remains at a low level. From a valuation perspective, the sector's price-to-earnings ratio percentile over the past decade stood at 36.7% in Q1 2026, still positioned in the lower-middle range of its historical valuation.
The firm attributes this primarily to the slow pace of fundamental recovery in the sector. While demand in areas like travel and tourism has been gradually recovering since 2025, overall consumer spending power remains subdued, leading to cautious market expectations about profit elasticity.
Concentration in allocations remains elevated, with the "top-heavy" trend persisting. In Q1 2026, the combined allocation to the top 3, top 5, and top 10 companies in the social services sector reached 70.5%, 80.4%, and 93.3%, respectively, indicating a high level of concentration and a continuing trend of "circle shrinkage." The firm judges that this is due to two factors: intensified divergence in business conditions within the sector, which highlights the advantages of leading companies in brand, channels, and operational efficiency; and, against the backdrop of ongoing uncertainty in the consumption recovery, a preference for leading stocks with strong earnings certainty and high resilience to volatility.
The sector is in a bottoming-out recovery phase, with opportunities focused on three main directions: policy drivers, holiday performance, and demand certainty. Orient Securities believes the social services sector is currently in a bottoming-out phase regarding its business cycle, with both valuations and allocation weights at historically relatively low levels, suggesting limited downside. Looking ahead, as policies promoting culture and tourism take effect, offline consumption scenarios continue to recover, and potential improvements in the macroeconomic environment boost consumer spending power, demand in the sector is expected to gradually improve. In the short term, the travel chain remains the main theme for recovery, with the sector transitioning from a "valuation repair" phase in Q1 2026 to an "earnings-driven" phase in Q2 2026.
Investment recommendations and targets. Given the sector's characteristics of historically low valuations and allocation weights, high concentration, and its position in a bottoming-out recovery phase, a strategy of "building positions at the bottom, focusing on industry leaders, and seizing structural opportunities" is advised. Relevant targets include China Tourism Group Duty Free Corp., BTG Hotels Group, and Lijiang Tourism.
Risks include a slower-than-expected recovery in the sector's fundamentals, macroeconomic downturn risks, policy change risks, and intensifying industry competition.