According to a research report from Guosen Securities Co.,Ltd. (ASX: 002736), the social services sector has shown signs of stabilization, driven by market fund rebalancing, expanded consumption policies, and June's retail sales data. With the release of the "15th Five-Year Plan for Expanding Consumption," which prioritizes service consumption, mid-term growth prospects for the sector are expected to open up.

Specifically, following the implementation of the expanded consumption plan and expectations for stabilization as retail sales data base effects diminish, the firm suggests prioritizing oversold rebounds in high-quality leading companies and trading opportunities in summer tourism destinations. The key views from Guosen Securities are outlined below.

Market Performance Recap

In June, A-share social services fell 12%, while Hong Kong-listed social services declined 8%, with the sector recently stabilizing amid fund rebalancing. From June 1 to June 30, the A-share consumer services sector dropped 12.20%, underperforming the CSI 300 by 13.98 percentage points. The Hong Kong-listed consumer services sector fell 8.43%, outperforming the CITIC Hong Kong Connect Index by 0.17 percentage points.

Looking at sub-sectors, catering and duty-free performance was generally muted, while education and human services continued to adjust. Recently, the sector has stabilized due to market fund rebalancing, expanded consumption policies, and June's retail sales data.

Industry Trends

June's retail sales data turned positive year-on-year, boosted by expectations for consumption expansion policies. From January to June, China's total retail sales of consumer goods grew by 1.3% year-on-year, with June's growth rate turning positive. Structurally, service consumption, goods consumption, and catering consumption grew by 5.3%, 1.1%, and 2.8% year-on-year, respectively, from January to June.

Retail sales in tourism consulting and leasing services, as well as cultural, sports, and leisure services, both achieved double-digit growth, indicating structural strength in service consumption. With the introduction of the "15th Five-Year Plan for Expanding Consumption," which emphasizes service consumption, mid-term growth expectations for the sector are anticipated to improve.

Sub-Sector Analysis: Travel Chain

In the near term, focus on summer tourism trades and low-level rebounds of quality leaders. In Q2, travel sentiment declined due to oil price shocks and weather disruptions. Q3 offers a window for expectation recovery, supported by the expanded consumption plan and the positive turn in June's retail sales.

Despite intermittent weather disruptions during the summer, the trend of increasing air travel volume under normal conditions demonstrates demand resilience. Among these, summer resort destinations are expected to maintain strong performance. Hotel and duty-free stocks are at relatively low levels; fund rebalancing and marginal stabilization during the summer may drive sentiment recovery for strong alpha leaders.

Cyclical allocation opportunities, however, may require waiting for a fundamental inflection point or policy support. For online travel agency (OTA) leaders, attention should be paid to regulatory developments.

Sub-Sector Analysis: Chain Catering and Beverage

In the short term, prioritize certainty; for the mid-term, focus on growth potential after base effects are digested. In Q2, beverage same-store sales faced pressure due to a high base in food delivery. Leading companies countered this through category expansion, but marginal declines in store opening expectations have impacted short-term valuations. Subsequent store opening guidance after same-store base digestion warrants attention.

Amid a value-for-money trend, catering leaders are actively adjusting store formats and pricing. Short-term same-store sales adjustments may disrupt performance, but focus should be on long-term healthy development post-adjustment. Some high-quality leaders with stable same-store sales and store expansion, coupled with good shareholder returns, are likely to benefit first from improved liquidity in Hong Kong stocks at current low levels.

From a mid-term perspective, companies with strong supply chains and management capabilities still hold allocation value. Additionally, as competition in food delivery eases, platform leaders' profitability is expected to recover.

Sub-Sector Analysis: Education

Prioritize high-quality leaders related to employment empowerment. Against the backdrop of expectations to boost domestic demand, demand for entrepreneur training and blue-collar vocational skills training is expected to remain resilient. Combined with seasonal characteristics, attention should be paid to trading opportunities for some leading companies during the peak interim reporting season.

Risk Advisory

Potential risks include macro, pandemic, and other systemic risks; policy risks; acquisitions falling short of expectations; shareholder减持 risks; and changes in market fund styles.