A nearly ten-month plan to acquire an office property has come to an abrupt end, leaving SUNDY SERVICE (HKEX: 09608) to grapple with both an abandoned expansion move and shrinking profitability. The company announced on September 14 that the purchase of a Hangzhou office unit was terminated because the target property temporarily failed to meet purchase conditions, preventing the completion of property title transfer procedures.

The proposed acquisition, initiated in November 2025, was formally called off at the letter-of-intent stage, with no legally binding agreement ever signed between the parties. The termination came just two weeks after SUNDY SERVICE posted an interim report showing a decline in revenue and a sharp drop in profit, underscoring the dual challenges facing this small-cap Hong Kong-listed property management firm.

Aborted "bargain" acquisition

The original plan dated back to November 19, 2025, when SUNDY SERVICE's indirect wholly-owned subsidiary Hangzhou Hehong signed a letter of intent with Greenland Holdings to purchase an office unit on the 17th floor of Tower 2 of Hangzhou Century Center in Xiaoshan District for RMB 6.648 million, covering a floor area of approximately 228.83 square meters. The property is part of the "Hangzhou Gate" landmark project, jointly developed by Greenland Holdings and Songdu Shares, the latter being a related party to SUNDY SERVICE as both are controlled by the same individual.

The company's rationale for the purchase was straightforward: the asset occupied a prime location with solid ancillary facilities and potential for value preservation and appreciation. Given the subdued property market, acquiring the asset at a price below its peak value was seen as a chance to generate capital gains in the future. Supplementary disclosures also revealed that the property had been listed for sale for two years prior to the acquisition, generating no rental income as it remained vacant.

Over the course of nearly ten months, SUNDY SERVICE issued five announcements related to the deal, pushing forward with the title transfer process. The eventual termination was explained briefly, with the company stating that the property "temporarily does not meet purchase conditions," without elaborating on the specific deficiencies. Industry observers noted that given the involvement of a related party in the joint development of Hangzhou Century Center, the transaction was classified as a discloseable and connected transaction, adding layers of complexity to the deal's progression.

Weakening performance and related-party reliance

The halted acquisition is not an isolated event but rather a symptom of the company's broader operational strain. In its interim results released on August 31, SUNDY SERVICE reported revenue of RMB 108 million for the first half, down 7.0% year-on-year. Profit attributable to shareholders tumbled 55.9% to approximately RMB 4.7 million, with basic earnings per share falling to 0.12 cents from 0.27 cents a year earlier. The board did not recommend an interim dividend.

Revenue breakdown revealed further pressure: property management services, the core business, generated RMB 88 million, down 6.3%; non-owner value-added services plummeted 60.3% to just RMB 180,000; community value-added services rose 8.5% to RMB 9.6 million; and other businesses declined 2.1% to RMB 0.9 million. The sharp contraction in non-owner services reflected the reduced demand for related party support in the property development segment.

The company's profitability was further eroded by a surge in impairment losses on trade receivables, which widened to RMB 20.34 million in the first half, nearly double the RMB 11.03 million recorded a year earlier, signalling growing difficulty in collecting payments from upstream and downstream partners. In terms of scale, total gross floor area under management stood at 8.5 million square meters as of June 30, essentially flat compared with the previous year, while contracted gross floor area reached 9.4 million square meters, indicating a near standstill in growth.

Structural concerns persist over the company's heavy reliance on related parties. Of the 48 projects under management, only seven were developed by independent third-party developers. While SUNDY SERVICE did not disclose the exact split of property management revenue between related and third-party sources in its latest interim report, prior disclosures for the first half of 2025 showed approximately 84% of such revenue came from projects developed or co-developed by Songdu Shares, with independent third parties contributing just 16%. Related-party projects accounted for 80.1% of total managed area.

This dependency leaves the company vulnerable to revenue volatility during market downturns. The situation is not unique in the industry. Data from the China Index Academy indicates that the property management sector witnessed only 18 mergers and acquisitions in 2025, with disclosed transaction value of just RMB 2.033 billion, a significant contraction from peak levels. CRIC statistics similarly showed listed property management firms disclosed only 23 M&A deals totaling RMB 3.69 billion, confirming that industry consolidation has shifted from scale-driven to resource-complementary strategies.

Analysts suggest that SUNDY SERVICE has been attempting to reduce its reliance on property developer affiliates, gradually shifting focus toward community value-added services. However, with community value-added revenue still below RMB 10 million, the contribution to overall performance remains limited. The stagnation in managed area, coupled with only seven third-party projects, highlights the lack of organic growth drivers.

For a small property management firm with less than 10 million square meters under management and income heavily dependent on related parties, the decision to abandon an acquisition of a related-party asset may seem like a tactical retreat. Yet the bigger challenge lies ahead: building genuine third-party expansion capabilities and restoring profitability in an environment where related-party project deliveries are shrinking. The company's long-term trajectory will depend on how effectively it navigates this transition.