Incident: Relevant parties disclosed the progress of overseas debt restructuring. According to the announcement, creditors chose Sunac Services shares to be higher than the upper limit. Company affiliate Sunac China issued an announcement. According to the restructuring plan, creditors can voluntarily choose to exchange existing claims for Sunac Services shares. The exchange price is HK$13.5 per share, and the maximum number of shares transferred is 449,356,068 shares, accounting for 14.7% of Sunac Service's issued shares on the day of the announcement; according to the announcement, the restructuring consideration for creditors choosing to exchange Sunac Services shares was US$1.34 billion, higher than the maximum amount of planned amount (US$7.75 billion).
Comment: The exchange price reflects the value of the company. The fundamentals are stable, moderate and positive, and valuation restoration can be expected 1) Sunac Service is a high-quality asset within the group, and the exchange price reflects the company's value. According to Sunac China's restructuring plan, Sunac Services's share exchange price was 2.5 times the weighted average price for the 60 trading days immediately before the record date. The lowest price was HK$13.5 per share; the final exchange price was HK$13.5 per share. Sunac Service is a high-quality asset-light property management platform owned by Sunac China. As of June 2023, the company has a contract area of 400 million square meters, covering 145 cities, 2,331 contract projects, and serving more than 1.43 million owners. The service format covers residential, commercial, urban services, case sites, hospitals, schools, industrial parks, etc. The transaction fully reflects the company's intrinsic value and creditor confidence in the long-term development of Sunac Services.
2) The core business is developing steadily, and the fundamentals are stable, moderate and positive. Since the related party Sunac China was affected by the downturn in real estate in 2022, the company faced pressure on operations and repayment, and made adjustments to related businesses, including personnel optimization, organizational structure adjustments, etc., to further focus on core business, and enhance operational safety and long-term development sustainability.
The 2023H1 company achieved revenue of 3.4 billion yuan yoy -15%, gross profit of 850 million yuan yoy -25%, net profit reversing losses year-on-year to 340 million yuan, developers' value-added business revenue accounting for 6% and gross profit accounting for 4%. The negative impact of real estate-related business on the company's performance was basically clarified; the property management business developed steadily, achieving revenue of 2.902 billion yuan yoy +8.1%, and gross profit of 730 million yuan yoy +3.6%, accounting for 86% of the total gross margin. Overall, the company's fundamentals are stable, moderate and positive. After experiencing the pain of short-term business adjustments, the company is expected to return to a normal growth trajectory.
3) The credit risk of related parties has been mitigated, and the restoration of the company's valuation can be expected. As of June 30, 2023, the total amount of trade receivables from related parties of the company was about 3.24 billion yuan, and the impairment provisions accrued from related parties' trade receivables were set back RMB 56 million compared to the end of 2022; the restructuring of foreign debt of related parties was smooth, which is conducive to relieving financial and operational pressure. The safety and security of the company's trade receivables has been further improved. The company has already made large impairment provisions in the early stages. The negative impact of subsequent receivables impairment on profits is limited. As risks from related parties gradually improve, the company's valuation is expected to be further repaired.
Profit forecasting, valuation and ratings: As the related party Sunac China is affected by the downturn in real estate, the company's related business revenue and profits have been greatly adjusted; Sunac's overseas debt restructuring is progressing smoothly, which is conducive to relieving pressure on its own capital and operations. The impact on Sunac's service-related business needs to be further tracked. We maintain the company's net profit forecast for 2023-2025 at 6.2 million yuan/690 million yuan/780 million yuan, corresponding to EPS of 0.20/0.23/0.25 yuan.” “Increase in holdings” rating.
Risk warning: Outreach falls short of expectations, and there is uncertainty about operating income and impairment of related businesses.