A report from Guolian Minsheng Securities Company Limited indicates that valuations, profit expectations, and institutional holdings for the social services sector have retreated to historically low ranges by 2026, with notable divergence among its subsectors.

Overall, the social services sector is currently in a phase characterised by weak demand recovery, low expectations, and structural divergence, with sector valuations and market expectations having fallen to historically low levels.

Considering factors such as earnings certainty, operational efficiency, cash flow quality, and reasonable growth potential, the firm recommends prioritising segment leaders with higher certainty.

Key Observations from GLMS Securities

Sector Review: Valuations and Expectations Hit Low Levels in H1 2026

Since the start of 2026, influenced by multiple factors including the release of holiday policy benefits, rising travel costs, disruptions in consumption patterns, and shifts in market sentiment, the social services sector has seen its valuations, profit expectations, and institutional holdings all decline to historically low ranges.

In terms of stock performance, as of June 15, 2026, the consumer services sector has fallen 24.93% year-to-date, ranking 30th among primary CITIC sectors, with a relative return of -30.59 percentage points against the CSI 300.

Regarding institutional holdings, the allocation ratio for social services funds in Q1 2026 was 0.60%, a decrease of 0.06 percentage points from the previous quarter, with sectors like duty-free, human resource services, and OTAs seeing relatively larger reductions.

At the performance delivery level, divergence among subsectors is evident: the operational resilience of OTA and hotel sectors continues to be validated, scenic area revenues maintain year-on-year growth, and duty-free sales show low-level recovery.

Conversely, growth in catering and human resource services has slowed, leading to further divergence in performance within these sectors.

Consumption Landscape: Overall Growth Slows, Service Consumption Shows More Resilience

Since 2026, the growth rate of total retail sales of consumer goods has generally slowed, with the single-month year-on-year figure turning negative in May, indicating continued pressure on household consumption demand.

Looking at the trend, the year-on-year growth rate of total retail sales declined stepwise over the first five months, suggesting a further shift towards a "low-slope recovery" for the broader consumption market.

In contrast, service consumption has demonstrated greater resilience. From January to May 2026, service retail sales grew 5.4% year-on-year, consistently outpacing the growth of goods retail sales.

This reflects an evolution in household consumption structure, shifting from being dominated by physical goods towards a more balanced emphasis on both goods and services.

In 2025, service consumption accounted for 46.1% of household consumption in China, an increase of 3.5 percentage points from 2020, yet there remains room for improvement compared to mature economies like the US, where the share is around 70%.

As China's per capita GDP exceeds $13,000, service consumption remains in a stage of structural upgrading and long-term expansion.

Subsector Outlook: Policy Catalysts Emerge, Structural Divergence Continues

Since 2026, many regions across the country have begun exploring and implementing spring and autumn holiday systems for primary and secondary schools.

This is expected to smooth out seasonal fluctuations in cultural and tourism demand and unlock incremental service consumption through scenarios like staggered travel, short-haul trips, and local leisure spending.

A breakdown by subsector reveals the following outlooks:

1) The hotel sector is expected to continue its trend of marginal improvement in supply and demand. Slowing supply growth combined with catalysts from the peak summer season could support positive RevPAR growth, suggesting attention to sector allocation opportunities.

2) The catering sector overall continues a weak recovery, but performance divergence among individual stores has intensified due to shifts between dine-in and delivery structures and brand life cycles.

The focus is recommended on chain catering leaders with outstanding operational capabilities, stable cash flows, and dividend-paying capacity.

3) For the duty-free sector, sales in Hainan's offshore duty-free market have turned positive year-on-year since September 2025 and continue to recover.

Coupled with a rebound in high-end consumption and policy optimisations, opportunities for low-level recovery in duty-free leaders are worth monitoring.

4) The scenic area and tourism sector is shifting from aggregate recovery to structural divergence. OTAs, outbound/inbound travel chains, and high-quality destinations hold relative advantages.

It is advisable to focus on quality targets with upwardly revised earnings expectations, those benefiting from inbound tourism, and those possessing scarce resources.

5) The human resource services sector remains in a consolidation phase, with recruitment demand yet to show substantial improvement. However, platform-based leaders exhibit stronger operational resilience, warranting continued tracking.

Risk Factors to Consider

Key risks include: 1) A slowdown in macroeconomic growth; 2) Consumer recovery falling short of expectations; 3) Intensifying market competition exceeding forecasts; and 4) New market development underperforming expectations.