According to Caixin News on August 27th, Sunac Services (01516.HK) continues to control and reduce the impact of related party Sunac China on its performance.

According to the mid-year performance report released by Sunac Services, in the first half of this year, Sunac Services achieved a revenue of 3.484 billion yuan, an increase of about 3% compared to the same period last year; the gross profit was 0.89 billion yuan, and the core net profit was 0.45 billion yuan. As of the end of the reporting period, Sunac Services had sufficient available funds of 3.38 billion yuan, no interest-bearing liabilities, no external guarantees, and net assets of 5.3 billion yuan.

In terms of revenue, the income from related party Sunac China was only 0.094 billion yuan, a year-on-year decrease of about 51%. This portion of income also accounted for 3% of the total income, and the total amount of trade receivables from related parties did not further increase compared to December 31, 2023.

At the same time, the business from third parties continued to grow, reaching 3.39 billion yuan, accounting for a high proportion of 97.3%.

Industry insiders believe that behind the stable and good revenue of Sunac Services is the optimization of its business structure while maintaining a stable scale of management.

As of June 30, 2024, Sunac Services had a managed construction area of approximately 0.282 billion square meters, of which the residence format accounted for about 88% and the non-residence format accounted for about 12%. In addition, it has exceeded 1.6 million households of property owners under management, and the annual saturated income from managed projects is about 6.4 billion yuan.

"In the future, the company will continue to focus on first- and second-tier cities and adhere to the corporate development philosophy that health is more important than speed, driving the company towards improvement," said Sunac Services.

It is worth noting that due to the continuous downturn in the real estate market, the payment situation of related parties fell short of expectations, and the value of collateral provided by related parties for repayment and mortgage guaranteed assets has declined. In view of prudential considerations, Sunac Services has further made provision for impairment of trade and other receivables from related parties.

According to the financial report, in the first half of 2024, Sunac Services added approximately 0.73 billion yuan to the provision for impairment of trade receivables from related parties, compared to December 31, 2023. At the same time, the provision for impairment of trade receivables from related parties accounts for 93% of the unsecured and pledged trade receivables from related parties.

Sunac Services stated that it will continue to collect trade receivables from related parties.

As of June 30, 2024, the total amount of trade receivables from related parties of Sunac Services was about 3.32 billion yuan, a decrease of about 0.099 billion yuan compared to December 31, 2023. In addition, the net amount of trade receivables from related parties after provision for impairment is about 0.65 billion yuan, of which the amount guaranteed by certain assets held by related parties is about 0.6 billion yuan, and the unsecured amount is only 0.19 billion yuan.

"In the management of related party business and receivables, we will continue to treat related party business with market principles, take payment as a prerequisite to judge whether to undertake the business, and actively pursue collection to promote the real estate to provide quality assets for debt and guarantees." said Sunac Services.