Goldman Sachs on Country Garden Services (6098.HK): 1H26 In Line — Core Operations Stable Despite Rising Impairments; Neutral
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Country Garden Services (6098.HK) posted broadly in-line 1H26 results: net profit fell 5% while core net profit rose 3% YoY—the first positive core profit growth in several years—driven by 6% revenue growth, roughly flat gross margin and faster-than-expected SG&A optimization. Receivables impairments widened to Rmb1.1bn (Rmb0.6bn/Rmb1.0bn in 1H25/2H25), lifting the AR provision ratio 2pp to 17%, and cash flow improvement remained limited: the operating cash outflow narrowed only slightly to about Rmb745mn while AR balances grew 11% gross and 8% net, faster than revenue. No interim dividend was declared, consistent with historical practice, though the company repurchased 35mn shares (1% of capital). Positives include managed GFA up 3% to 1.1bn sqm, new contract wins up 53%, community VAS revenue up 18% (local life +22%, community space services +25%), PMS margin resilience under the PARA people-agent-robot-AIoT strategy, and a 1.3pp lower SG&A ratio. Goldman Sachs keeps Neutral, cutting its 12-month target to HK$6.50 from HK$6.90 (12.4% upside from HK$5.79): a ~10% dividend yield and buybacks support the shares, but impairments, stretched core margins (~5pp above industry norms) and collection pressure persist.