Profit drops by 60%, Excellent Business Services clears old accounts

After the market close on March 6, “the first stock of high-end commercial properties” Excellence Business Services (06989.HK) released its 2025 earnings forecast:

It is expected that the full-year attributable net profit to shareholders will decrease significantly by approximately 60% to 70% year-on-year.

In the context of a recent bottoming and recovery of 2024 performance, this profit warning undoubtedly drew market attention. Based on its 2024 net profit attributable to shareholders of about 312 million yuan, this figure may fall to around 187 million yuan in 2025.

At first glance, this is a report card that could cause investor concern.

However, on the other side of the ledger, the fundamental improvement in Excellence Business Services’ cash flow situation is noteworthy. As the “lifeline” of property management companies, operating cash flow turned positive in 2025, reaching a recent high in liquidity reserves, which may signal the start of a new cycle of “lightening the load.”

Excellence Business Services attributes the sharp profit decline to two main reasons: first, proactive cleanup of long-standing related-party trade receivables leading to increased impairment losses; second, provisioning in accordance with the final court ruling related to Beijing Global Wealth’s case, which involved making full provisions for financial guarantee obligations.

The first points to issues with related-party overdue receivables.

As a property management company spun off from Excellence Group, Excellence Business Services has been actively promoting “de-related-party” operations during the real estate downturn. Financial reports show that in 2024, related-party revenue accounted for less than 10% of total revenue, with third-party managed area exceeding 60%.

However, the legacy receivables still need to be addressed. As of June 30, 2025, related-party trade receivables amounted to 751 million yuan, accounting for 37.8% of total trade receivables.

The proactive provisioning for long-overdue related-party receivables in the annual report effectively severs the last “soft cord” linking it to the parent real estate company.

The second reason relates to the final settlement of a merger and acquisition case from three years ago.

On April 6, 2021, Excellence Business Services entered into a transaction agreement with Beijing Shiyuan Guanghua Real Estate Development Co., Ltd., and Beijing Guanghua Road No. 5 Trading Co., Ltd., to acquire a 75% stake in Beijing Global Wealth Property for 225 million yuan. However, there were existing guarantee issues associated with this target before the acquisition.

Previously, due to litigation judgments and unmet preconditions, at the end of 2024, Excellence Business Services announced it would no longer pay the third installment of 45 million yuan to the seller. Earlier, in 2022, it had also made provisions of about 62.37 million yuan related to this matter.

In the second half of 2025, the guarantee-related litigation involving Beijing Global Wealth Property reached a final court ruling. The additional provisions made at this stage can be seen as the final step in fully clearing this risk.

It is clear that the common logic behind these two actions is: rather than allowing legacy issues to continue eroding future profits, it is better to concentrate and resolve them within a single fiscal year, thereby lightening the balance sheet.

Contrasting with the bleak profit outlook, Excellence Business Services’ cash flow indicators have shown significant improvement.

The announcement disclosed that, as of December 31, 2025, its unaudited cash and financial products total no less than 1.3 billion yuan, up from about 1.084 billion yuan at the end of 2024, representing approximately a 20% year-on-year increase.

This cash reserve growth, despite large impairment provisions, suggests two messages: first, impairment losses are non-cash expenses and do not affect actual funds; second, core third-party market-oriented business contributes stable cash inflows.

The valuation logic of the property management industry is shifting from “scale worship” to “cash flow dominance.”

In this context, Excellence Business Services’ actions can be seen as a proactive adaptation to this new valuation system—only with asset quality after removing historical impurities can future valuation recovery be truly supported.

Of course, risks remain.

The progress of related-party receivable cleanup, the cost control pressures from expanding third-party business, and investor confidence recovery after impairment provisions are issues that management needs to address in the official annual report release and subsequent performance communications.