Morgan Stanley has published a research report noting that the first-half results of major mainland property management companies broadly aligned with expectations, with average revenue growing 5% year-on-year while earnings dipped by an average of 1%. The bank projects industry earnings growth of around 5% in 2026, accompanied by an average dividend yield of roughly 6%. Its top picks are Greentown Service Group Co Ltd (02869) and Country Garden Services Holdings Co Ltd (06098). The former is expected to deliver mid-teens earnings growth with a 6.8% dividend yield, while the latter has swung back to profitability, offering a 9.6% dividend yield alongside ongoing share buybacks.

The report highlights a continued divergence in growth trajectories among property management firms. Greentown Service and China Resources Mixc Lifestyle Services Ltd (01209) are targeting earnings growth of 10% to 15% in 2026, supported by low single-digit revenue expansion and gross margin improvements. In contrast, other industry peers are aiming for more modest growth of 0% to 5%.

Gross margins in the property management sector remain under pressure, driven by a rising proportion of third-party projects and weaker collection rates from residential projects with high vacancy levels. However, the decline is expected to remain moderate, aided by the termination of loss-making projects and a more cautious approach to new project expansion. Cash discipline and project quality are increasingly taking precedence over sheer scale.

Impairments related to third-party receivables are likely to remain elevated over the next two to three years, as aging accounts receivable continue to accumulate. On the policy front, recent discussions around the "completed sales model" and social security compliance have drawn market attention. Morgan Stanley believes the impact of the "completed sales model" will be limited, as incremental property management revenue from developers accounts for less than 5% of total revenue in fiscal 2025, declining to under 2.5% in the first half of 2026.

Regarding social security compliance, labor costs may rise as regulatory requirements tighten, though the ultimate financial impact will depend on implementation details. Most management teams view the risk of large-scale retroactive collections as low.