The Zhitong Finance App learned that Citibank released a research report saying that Sunac Services (01516) lowered its target price from HK$0.85 to HK$0.65 due to weak cash conversion, extended accounts receivable cycle, and shadows from related parties that continued to constrain the valuation.
The bank pointed out that the company is giving priority to improving quality rather than expanding scale. It has withdrawn from 72 projects in the first half of the year and ended the Changtai service portfolio. The goal is to withdraw 99 more projects in the second half of the year, concentrate resources on core cities, and selectively expand high-profit non-residential businesses. The bank believes that along with stricter cost control, enhanced collection and application of technology, the quality of operations may be gradually improved; however, operating cash flow still limits dividends, and repurchases only provide some support. With no clear inflection point in cash flow and limited visibility of short-term growth, the bank believes there is limited room for revaluation.
The bank lowered the company's profit forecast for 2026 by 8%, reflecting a slowdown in management area growth due to active withdrawal from inefficient projects. The recovery in gross margin was also moderate, and the impairment of accounts receivable was still a shadow of profit. The reduction in the target price reflects a reduction in profit forecasts, as well as a reduction in the target forecast price-earnings ratio from 7 times to 6 times in 2026 due to limited visibility of short-term revenue and profit growth and a long path to recovering operating cash flow.