China’s real estate crisis continues to pose challenges as the economy remains sluggish, directly impacting the property management industry. In the first half of the year, leading property management company Country Garden Services saw a significant decline in net profit, with accounts receivable continuing to rise, and operational cash flow plummeting nearly 90% year-on-year.
On August 22nd, Country Garden Services (06098.HK) released its interim performance report.
According to the report, it achieved revenue of 21.045 billion yuan, a 1.5% year-on-year increase. However, net profit decreased by 38.7% to 1.44 billion yuan compared to 2.351 billion yuan in the same period in 2023. Gross profit fell by 13.7% to 4.453 billion yuan, and operational cash flow dropped from 2.19 billion yuan in the same period last year to 270 million yuan, an 87.7% decline.
The company’s contracted management area is approximately 1.635 billion square meters, with an increase of around 1.9 million square meters from the same period last year. Fee-managed area is about 1.006 billion square meters, with an increase of approximately 89.6 million square meters from the previous year. The property service contract management area for “three supplies and one industry” business is around 95.4 million square meters, with a fee-managed area of about 90.6 million square meters.
“Three supplies” refer to water supply, electricity supply, and gas supply, while “one industry” refers to property management.
Despite the revenue and management area growth in the first half of the year, multiple indicators, especially the significant drop in cash flow, are on the decline for Country Garden Services.
In response to this, the management stated that the decline in operational net profit was within expectations, and there was a temporary increase in funds generated from daily operating activities, such as participating in more market expansion projects. They also mentioned a decrease in property fees pre-paid by owners.
As of the end of June, the company’s trade accounts receivable stood at 21.958 billion yuan, an increase of about 2.4 billion yuan from the end of 2023, with accounts receivable aged over three years growing from 376 million yuan to 601 million yuan.
Regarding the rapid increase in accounts receivable, the company’s CEO and CFO, Huang Peng Huang, mentioned that they have established a debt collection committee composed of some senior executives. The company has taken a series of measures to recover overdue accounts, such as using assets to offset debts, advancing litigation or arbitration, which could gradually translate into cash flow in the future.
Country Garden Services was founded in 1992 as the property division of real estate company Country Garden (02007.HK). In June 2018, the company was spun off, with Country Garden Services going public and subsequently becoming the largest property management enterprise by managed area in China.
Currently, Country Garden and Country Garden Services do not hold shares in each other, but they belong to the same corporate group. Both companies are ultimately controlled by Yang Huiyan, who owns approximately 36.12% of Country Garden Services.