Goldman Sachs issued a research report downgrading SUNAC SERVICES (01516), reducing its profit forecasts for 2025-2027 by an average of 55% and core profit forecasts by an average of 11%. The firm also lowered its free cash flow and operating cash flow projections, cutting the target price from HK$1.78 to HK$1.48 and downgrading the rating from "neutral" to "sell."
The report noted that the group's first-half net profit performance was lackluster, with the property management services business experiencing a 4 percentage point decline in gross margin compared to the same period last year.
Additionally, management has become more prudent regarding revenue recognition for services provided to residential property owners and impairment provisions. The expiration of warranty periods for projects delivered in recent years has led to rising repair and maintenance costs, ultimately resulting in increased impairment of third-party receivables.
Looking ahead, given that SUNAC SERVICES' portfolio contains a large number of low-quality projects delivered by its affiliated developer Sunac China (01918) in recent years, Goldman Sachs expects profit margins to require one to one-and-a-half years to stabilize, with impairment risks also needing time to moderate.
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