Profit enters a period of growing pains—how can Yuexiu Service navigate the cycle?

Profit enters a period of growing pains—how can Yuexiu Service navigate the cycle?

As the real estate industry enters a period of deep adjustment, the property management industry has bid farewell to the rapid expansion of past years, fully stepping into a new stage characterized by competition over existing assets and meticulous operations.

As a property service company backed by Yuexiu Real Estate, Yuexiu Services' annual performance report for 2025, released on March 26, is a genuine reflection of this industry cycle shift.

Looking at overall revenue, Yuexiu Services barely maintained a growth trend in 2025, achieving a total annual income of about 3.902 billion RMB, a slight year-on-year increase of 0.9%.

However, beneath the steady appearance of total revenue, its profitability encountered substantial downward pressure.

Financial statements show that Yuexiu Services' net profit attributable to the parent company in 2025 was about 270 million RMB, a year-on-year decline of 22.5%. Meanwhile, the company's core profit indicator, gross margin, also suffered a notable drop, falling from 23.3% in 2024 by 8.5 percentage points to 14.8%.

This situation of revenue growth without profit growth sharply reflects the current profit pain faced by property management companies. 

Specifically, the primary cause for the significant annual profit drop at Yuexiu Services is the decline of high-margin businesses closely tied to the real estate development cycle. 

Directly affected by the deep adjustment of the real estate sector, the gross margin of non-owner value-added businesses (such as brokerage business) at Yuexiu Services shrank by 12.2 percentage points, while gross margin of community value-added services dropped by 9.7 percentage points due to the phased completion of hard furnishing business. 

At the same time, regarding basic property management services, because of continued investment and policy-driven rigid increases in labor and outsourced personnel costs, the gross margin of Yuexiu Services' basic property management services was further squeezed, falling by 3.7 percentage points last year. 

Under the combined impact of these factors, the gross margin of Yuexiu Services' non-commercial property management and value-added service segment plunged from 21.9% in 2024 to 13.4% in 2025.

Additionally, fluctuations in the macroeconomic environment have also affected commercial property operations. In 2025, leasing rates for commercial projects generally declined, and to stabilize foot traffic and leasing rates, Yuexiu Services had to buck the trend by increasing cost investment, directly causing the segment gross margin for commercial property management and operational services to drop from 29.3% to 20.7%.

Fundamental profitability pressure inevitably extended to the secondary market.

Over the past year, with developers' business sentiment remaining low, the valuation of the entire property management sector has undergone a profound reshaping. Investors have scrutinized the growth prospects and risk resistance of property companies more strictly, and Yuexiu Services' stock performance has faced considerable volatility and downward pressure.

After issuing a profit warning for 2025, Yuexiu Services' stock price suffered a steep decline, dropping by 18.18% on February 16. As of the closing on March 26, its stock was about HK$1.79/share, with a total market value of about HK$2.689 billion.

Yuexiu Services CFO Li Huiting believes that the current stock price does not reflect the company's actual value. In 2026, market value management will mainly rely on performance improvements, focusing on expanding non-residential business and structural adjustments to value-added services.

Although she did not directly answer whether they would use buybacks to boost the stock price, Yuexiu Services has not remained silent in the secondary market over the past year.

Throughout 2025, Yuexiu Services repurchased a total of 8.2595 million ordinary shares, with a total cost of about HK$24.6 million. The highest repurchase price reached HK$3.29 per share.

Besides large-scale buybacks, Yuexiu Services also tried to solidify long-term investor confidence through generous dividends. In 2025, the full-year payout ratio increased to 60%, with a dividend of RMB 0.11 per share.

In a period of industry confusion, this highly certain cash return is undoubtedly a strong shot of confidence for the market.

Yuexiu Services can undertake such dividends and buybacks in the secondary market so confidently because of its healthy balance sheet and ample cash flow.

By the end of last year, Yuexiu Services held about RMB 4.906 billion in cash and cash equivalents and term deposits, with no bank loans on its books.

In terms of scale, Yuexiu Services maintained its usual prudence.

In 2025, contracted area only slightly increased by 1.4% to 90 million square meters, while managed area grew by 6% to 73.5 million square meters. The slowdown in growth is due to Yuexiu Services' proactive "slimming" of its management portfolio—during the year, the company exited from as much as 6.5 million square meters of low-quality, low-efficiency projects.

Notably, of the funds raised in its 2021 IPO, Yuexiu Services still has about RMB 495 million earmarked for acquisitions that remain unused.

According to management, considering changes in the industry over the past few years, Yuexiu Services’ prudent attitude towards M&A has proven especially valuable. The company has been actively monitoring and following market opportunities, focusing on targets with high synergy, good operational quality, high sustainability, sound financials, and relatively reasonable valuations.

Standing at the watershed of deep reshuffling in the real estate and property management industries, Yuexiu Services experienced pain from the retreat of high-margin businesses in 2025, but also demonstrated rational financial control and decisive strategic adjustments.

Short-term volatility in the secondary market may be inevitable, but as industry elimination accelerates in the second half, those with healthier cash flows and successful transformations will possess the power to redefine the market landscape.

 

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