Investment Rating - The report does not explicitly state an investment rating for the industry but emphasizes the potential for significant alpha generation through the enhanced MSSBT V2 model. Core Insights - The MSSBT V2 model has been developed to capture greater alpha by incorporating both inclusion and exclusion predictions for stocks in the southbound trading scheme, achieving a hit rate of 93% for exclusion predictions and an average absolute return of 25% through a two-way trading strategy [1][3][23]. - Southbound capital inflows reached a record high of $170 billion in 2025, significantly impacting the Hong Kong market and enhancing the liquidity and investor structure for Hong Kong-listed stocks [1][3]. - Historical data indicates that stocks removed from the southbound trading list experience a substantial decline in trading volume and liquidity, with an average daily trading volume drop of 44% and a 28% reduction in southbound ownership within 30 days post-exclusion [2][27][28]. Summary by Sections MSSBT V2 Model - The MSSBT V2 model enhances alpha generation capabilities by predicting both inclusion and exclusion of stocks, with a backtest showing a 93% hit rate for exclusion predictions and an average performance of 11% for predicted stocks [3][20]. - The model suggests that in the upcoming March 2026 review, 44 stocks are expected to be included and 25 excluded from the southbound trading list, recommending investors to build equal-weight positions based on these predictions [3][11][35]. Impact of Southbound Capital - Southbound capital inflows have been a major driver for the Hang Seng Composite Index, with a record net inflow of $170 billion in 2025, continuing into 2026 [1][3]. - The participation of southbound capital is increasingly important for liquidity supply and the investor holding structure of Hong Kong-listed stocks [1]. Historical Performance of Excluded Stocks - Analysis of 285 stocks excluded from the southbound trading list from 2020 to 2025 shows that these stocks typically experience a 44% decline in average daily trading volume and a 28% decrease in southbound ownership within 30 days after exclusion [2][27][28]. - Over 70% of excluded stocks show significant price declines, averaging an 11% drop in the 30 days prior to exclusion, indicating a clear negative impact on stock performance [16][31].

Summary of Conference Call on China Property Management & Services Industry Industry Overview - The property management and services (PMC) industry in China is expected to experience moderate growth in 2026 due to ongoing headwinds such as pressure on management fees and cash collection [1][2] - The industry is transitioning to a new growth phase, moving away from legacy issues, although cash collection pressures and management fee weaknesses persist [2] Key Insights - **Earnings Growth Forecast**: The forecast for earnings growth from 2025 to 2027 is 3%, 5%, and 7% year-on-year, respectively, with an average topline growth of approximately 5% [3] - **Performance Divergence**: Companies with strong service quality and solid asset bases are expected to outperform, while those relying on lower quality projects may struggle [2] - **Focus on High-Quality Names**: Recommendations include prioritizing companies like CR Mixc and GTS for their asset quality and decent dividends, with CGS identified as a tactical investment opportunity [4] Financial Metrics - **Management Services (PMS)**: PMS is projected to be the main growth driver with a 7% CAGR from 2025 to 2027, supported by diversified third-party expansion [3] - **Valuation Changes**: Price targets and ratings for various companies have been adjusted, with CGS seeing a 16% increase in price target due to improved cash flow and dividend visibility [11] Company-Specific Updates - **A-Living**: Earnings estimates for 2025-2027 have been revised down by 3%, 7%, and 7% due to a slower recovery in city services and the termination of low-quality projects [11] - **CGS**: Earnings estimates have been revised up by 3%, 5%, and 7% for the same period, reflecting lower SG&A and better-than-expected margin pressure [11] - **CR Mixc**: Earnings estimates have been adjusted down by 2%, 4%, and 7%, but the price target has been increased by 5% due to strong shopping mall performance [11] - **Onewo**: Earnings estimates have been revised down by 6%, 15%, and 28% due to rising margin pressure and liquidity risks from Vanke [11] Market Dynamics - **Cash Collection Pressure**: The average cash collection is expected to decline by 2-3 percentage points in 2025, impacting overall growth [2] - **Legacy Issues**: The impact of legacy issues is diminishing, with PMCs now focusing on independent growth engines and third-party projects [13][14] - **Property Sales Decline**: National property sales have dropped significantly, with expectations of further contraction in 2026, albeit at a milder pace [15][16] Investment Recommendations - **Order of Preference**: The preferred companies include Greentown Service, CR Mixc, and Poly Property Services, with A-Living and Sunac Services rated as underweight [12] - **Dividend Yields**: Companies like CGS and CR Mixc offer attractive dividend yields of approximately 8% and 4-5%, respectively [4][12] Conclusion - The China PMC industry is navigating through a challenging environment with moderate growth expectations. Companies that can maintain high service quality and adapt to changing market conditions are likely to emerge as leaders in this evolving landscape.

Summary of the Conference Call on China Property Market Industry Overview - The report focuses on the **China Property** market, specifically analyzing trends in property sales, prices, and inventory levels in the Asia Pacific region [1][9]. Key Points and Arguments 1. **Decline in Property Sales**: - Property sales in June experienced a significant drop, with primary sales volume in 65 cities decreasing by **23% year-on-year** compared to a **12% decline** in May. Secondary sales volume in 33 cities fell by **5% year-on-year**, reversing a **1% increase** in May [3]. - Year-to-date growth for primary sales is now at **-6% year-on-year**, while secondary sales show a **+11% year-on-year** increase for the first half of 2025 [3]. 2. **Falling Housing Prices**: - Primary home prices in 70 cities dropped by **3.7% year-on-year** and **0.3% month-on-month** in June, worsening from a **0.2% month-on-month** decline in May. Secondary home prices fell by **6.1% year-on-year** and **0.6% month-on-month** [4]. - In top-10 cities, secondary prices decreased by **5.3% year-on-year** and **0.6% month-on-month**, while in top-100 cities, the decline was **7.3% year-on-year** and **0.7% month-on-month** [4]. 3. **Increased Inventory Levels**: - Primary inventory months rose to **23.8x** in May, with tier 1 cities at **14.3x**, tier 2 cities at **24.0x**, and tier 3 cities at **29.0x** [6]. 4. **Land Sales Trends**: - Land sales in 300 cities showed a **4.4% year-on-year** decline in gross floor area (GFA) but a **36.9% year-on-year** increase in value, primarily due to changes in city mix. The year-to-date decline in land sales is now **-5.0% year-on-year** in GFA [7]. 5. **Market Sentiment and Future Outlook**: - The weakened resident sentiment and reactive policy measures are expected to exert additional pressure on home prices in the third quarter of 2025. The report suggests maintaining a defensive and selective investment approach, focusing on quality state-owned enterprises (SOEs) with high visibility, such as CR Land [1][2]. Additional Important Insights - **Client Engagement**: Client visits increased by **14% year-on-year** but decreased by **5% month-on-month** [5]. - **Secondary Listing Trends**: Secondary listing prices fell by **8.2% year-on-year** and **0.9% month-on-month**, while new secondary listings remained stable with a **-1% month-on-month** change and a **+13% year-on-year** increase [5]. - **Investment Recommendations**: The report highlights CR Land (1109.HK) and CR Mixc (1209.HK) as consumption beneficiaries, and C&D (1908.HK) and Greentown Management (9979.HK) as high-dividend-yield plays [2]. This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China property market, emphasizing the ongoing challenges and strategic recommendations for investors.