Xiaomo expects the profit margin of Country Garden Services (06098) to continue to be pressured in the next few years.
The Zhitong Finance App learned that J.P. Morgan Chase released a research report stating that while maintaining the Country Garden Service (06098) “reduced holdings” rating, the target price was lowered from HK$5.9 to HK$3.6. The bank expects that the performance of Country Garden Services will not drive the company's stock price response; on the contrary, the company's continued liquidity pressure may continue to put pressure on the stock price.
According to the report, the company announced asset impairment in December of last year and issued a profit warning in early March of this year. As a result, the results of the company's net profit and core net profit falling 85% and 22%, respectively, over the same period last year did not surprise the bank. As the company continues to face liquidity pressure, the bank estimates that Country Garden Services will continue to face risks such as impairment risk, organic growth capacity, and use as a financing tool.
In terms of positive factors for rating considerations, Country Garden Services is still able to maintain the level of dividends, and the company's accounts receivable days have also improved slightly. However, on the other hand, the company's property management profit margin has declined further, and it is expected that profit margins will continue to be pressured in the next few years; community value-added service revenue and gross margin will continue to decline; the company's significant depreciation; and slow growth in contract construction area are all negative factors affecting the rating.