CICC lowers Country Garden's service target price by 33% and downgrades its rating to 'Underperform'

On August 26th, Jin10 Data reported that CICC International issued a report stating that it has lowered the target price of Country Garden Services (06098.HK) by 32.7%, from HKD 5.5 to HKD 3.7, mainly based on its operating cash flow (OCF) accounting for only 15% of its core net profit. Its rating was downgraded from 'Neutral' to 'Underperform'. CICC International pointed out that the net profit of Country Garden Services in the first half of 2024 decreased by 38.7% to RMB 1.44 billion (the same below), and the core net profit decreased by 31.7% to RMB 1.84 billion, mainly due to the drop in gross profit. The most influential factor is that the net cash inflow from operating activities dropped significantly by 88%, with only RMB 270 million, accounting for only 15% of the core net profit. The significant drop in cash flow mainly reflected an increase of RMB 2.2 billion in accounts receivable, mainly due to credit risks of trading counterparties and reduced customer confidence.