Executive Summary / Key Takeaways

• Strategic Diversification Amidst Real Estate Core: Sunrise Real Estate Group (SRRE) is evolving beyond its foundational real estate development and brokerage in China, strategically expanding into property management, financial services, and digital platforms like e-commerce and streaming, aiming for a more resilient and diversified revenue base.
• Mixed Financial Performance with Huaian Project as Key Driver: While Q2 2025 saw a consolidated revenue decline, the first half of 2025 demonstrated robust 80% net revenue growth, primarily fueled by strong house sales from the Huaian project. This highlights the project's critical role in SRRE's near-term financial trajectory.
• Leveraging Digital Platforms for New Avenues: SRRE's foray into online shopping (SHDEW) and streaming (SHXSY) represents a strategic move to tap into direct-to-consumer markets and diversify beyond traditional real estate, though the long-term impact and profitability of these ventures are still developing.
• Internal Control Challenges Persist: The company continues to address a material weakness in its internal controls related to U.S. GAAP knowledge within its accounting department, indicating an ongoing need for strengthened financial reporting infrastructure.
• Regional Player in a Competitive Landscape: Operating in China's highly competitive real estate market, SRRE differentiates itself through an integrated service model but faces scale and efficiency challenges when compared to larger national developers like China Vanke (2202.HK) and Longfor Group (0960.HK).

Sunrise Real Estate Group: A Multifaceted Approach to China's Property Landscape

Sunrise Real Estate Group, Inc. (SRRE) operates at the intersection of China's vast and dynamic real estate market and an increasingly digital economy. Established through a reverse acquisition in 2004, SRRE has evolved from its origins in property brokerage and development to a more diversified entity. The company's core strategy now encompasses real estate development and sales, property brokerage, leasing, and management services, complemented by strategic forays into financial activities and digital platforms. This integrated approach aims to capture value across the property lifecycle while exploring new growth avenues.

SRRE's historical journey provides crucial context for its current strategic positioning. Its early success in agency sales in the PRC laid the groundwork for a more aggressive role in property investments. This led to significant development projects like the Linyi and Huaian projects, which remain central to its real estate portfolio. Concurrently, the company's expansion into financial services, including entity investment and fund management, reflects a broader vision to leverage its market insights and client relationships.

Technological Diversification: Beyond Bricks and Mortar

While SRRE's foundational business is real estate, its strategic diversification includes leveraging digital platforms to create new revenue streams and enhance customer engagement. The company's investment in Shanghai Da Er Wei Trading Company Limited (SHDEW), established in 2013, led to the development of an online shopping platform, "庭秘密," which has been operational since 2017. This platform allows consumers to purchase skincare, cosmetics, personal care products, and imported goods directly. The strategic intent behind this venture is to tap into the burgeoning e-commerce market in China, offering direct-to-consumer reach and diversifying revenue beyond property sales. While specific quantifiable benefits like market share or direct revenue contribution from this platform are not detailed, its existence signifies SRRE's commitment to digital engagement and brand building in adjacent consumer markets.

Further illustrating this digital push, SRRE incorporated Shanghai Xinshangyang Creative Communication Co., Ltd. (SHXSY) in December 2024, signaling a move into the streaming platform sector. This initiative aims to explore new digital content and communication channels, potentially creating additional engagement points with a broader consumer base. The "so what" for investors lies in SRRE's proactive stance on diversification through digital means. These platforms, while not directly tied to its core real estate technology, represent a strategic effort to build a more resilient business model by accessing new markets and customer segments, potentially offering growth opportunities that are less directly exposed to the cyclical nature of the property market.

Financial Performance: A Tale of Two Quarters

SRRE's recent financial performance presents a mixed picture, heavily influenced by the timing of real estate sales. For the three months ended June 30, 2025, net revenues declined significantly by 63% to $1.64 million from $4.45 million in Q2 2024. This quarterly dip was primarily due to a decrease in house sales recognized during the period. However, a broader perspective for the six months ended June 30, 2025, reveals a robust 80% increase in net revenues, reaching $11.43 million compared to $6.35 million in the prior year period. This substantial half-year growth was "mainly due to more sales revenue from the Huaian project compared with the same period in 2024," underscoring the critical role of this development in SRRE's top-line performance.

Cost of revenues mirrored this trend, decreasing by 83% in Q2 2025 but increasing by 85% for the first two quarters of 2025, directly correlating with the recognition of house sales from the Huaian project. Operating expenses showed a positive trend, decreasing by 29% in Q2 2025 and 10% for the first half of the year, attributed to a decrease in house sales-related expenses. General and administrative expenses, however, saw a 10.7% increase for the first two quarters of 2025, reaching $1.52 million.

A notable highlight was the "Other income, net," which swung from a $6.55 million loss in H1 2024 to a $1.80 million gain in H1 2025, a 127% improvement "mainly due to the paper loss of our stock market investment," indicating a significant recovery or improved performance in its investment portfolio. Overall, net income attributable to shareholders for the six months ended June 30, 2025, was $907,017, a substantial decrease from $7.61 million in the same period of 2024, reflecting the variability inherent in real estate revenue recognition.

Liquidity and Capital Management

SRRE's liquidity position as of June 30, 2025, shows cash and cash equivalents of $16.20 million, down from $19.95 million at the end of 2024. Restricted cash stood at $760,941.

The company's operating activities utilized $6.83 million in cash during the first half of 2025, primarily due to real estate under development. Conversely, investing activities provided $2.65 million, mainly from transactional financial assets. Management asserts that, "Considering our cash position, available credit facilities and cash generated from operating activities, we believe that we have sufficient funds to operate our existing business for the next twelve months."

For future growth, particularly if business expands more rapidly than anticipated, SRRE plans to "raise funds through the issuance of additional shares of our equity securities in one or more public or private offerings" or "through credit facilities obtained with lending institutions." This indicates a reliance on external financing for significant expansion, a common strategy for developers but one that carries inherent risks regarding market conditions and terms of financing. The company explicitly states there "can be no guarantee that we will be able to obtain such funds."

Competitive Landscape and Strategic Positioning

SRRE operates as a regional player in China's highly competitive real estate market, primarily focused on Shanghai and surrounding areas. Its integrated service model, combining development, brokerage, property management, and financial services, serves as a key differentiator. This approach aims to provide comprehensive solutions across the property lifecycle, potentially fostering stronger customer loyalty and recurring revenue streams.

However, SRRE faces formidable competition from larger, nationally scaled developers such as China Vanke Co., Ltd. , Country Garden Holdings Company Limited (2007.HK), and Longfor Group Holdings Limited. China Vanke, with its broad national footprint and diversification into urban development, often benefits from greater market access and operational scale, which can lead to more efficient resource allocation and stronger cash flow generation. SRRE's regional focus, while allowing for deeper local market penetration, may limit its overall growth trajectory compared to Vanke's expansive reach.

Country Garden, known for its large-scale residential projects and aggressive expansion, often achieves faster revenue growth. While SRRE's diversified services offer a unique value proposition, it may lag in sheer volume and the rapid project execution that characterizes Country Garden. Longfor Group, specializing in high-quality residential and commercial developments, often demonstrates superior efficiency and margins from its premium focus. SRRE's integrated model, while strong in customer retention through bundled services, might trail in technological capabilities for property management or sustainable development practices where Longfor could hold an edge.

Indirect competitors, including technology firms developing their own real estate for data centers or offering real estate crowdfunding platforms, also pose a threat. These alternatives could divert demand from traditional developers by offering more streamlined or cost-effective solutions. SRRE's strategic move into digital platforms like e-commerce and streaming can be seen as a response to this evolving competitive landscape, aiming to diversify revenue and engage consumers through new channels. However, the success of these ventures in a crowded digital space remains to be fully proven.

Risks and Challenges

Investing in SRRE carries several notable risks. The company's forward-looking statements are subject to "risks, uncertainties, and errors in assumptions that could cause our actual results to differ materially." The real estate sector in China is inherently cyclical and sensitive to "fluctuating market demand... and general economic conditions," factors largely outside SRRE's control. Furthermore, the company's ability to "raise money and grow our business and potential difficulties in integrating new acquisitions with our current operations, especially as they pertain to foreign markets and market conditions," are significant concerns.

A critical internal challenge highlighted in the 10-Q is a material weakness in internal controls as of December 31, 2024. This weakness stems from the "Company's accounting department personnel having limited knowledge and experience in U.S. GAAP." While remediation efforts, including hiring additional qualified personnel and providing ongoing training, have been underway since Q1 2015, these activities "have not operated for a sufficient period of time to demonstrate operating effectiveness." Consequently, disclosure controls and procedures were deemed ineffective. While management believes the financial statements fairly present the company's condition, this unremediated weakness introduces an element of risk regarding the reliability and timeliness of financial reporting. Additionally, the resolution to close SHDEW's operations by the end of 2026 indicates a strategic divestment or winding down of a diversification effort, which could impact future revenue streams from that segment.

Conclusion

Sunrise Real Estate Group (SRRE) is a company in transition, actively diversifying its business model within China's dynamic real estate sector. Its core investment thesis hinges on leveraging an integrated service approach in property development, brokerage, and management, while strategically expanding into digital platforms and financial services. The strong performance of the Huaian project in the first half of 2025 underscores the potential of its real estate development pipeline, yet the quarterly volatility highlights the inherent cyclicality and revenue recognition challenges of the industry.

For investors, SRRE represents a regional player with an ambitious diversification strategy. The company's efforts to build digital platforms and engage in financial activities could provide new growth avenues and a more resilient revenue base, but these ventures are still in their early stages. While management expresses confidence in its liquidity for the near term, the reliance on future capital raises for accelerated growth, coupled with persistent internal control weaknesses, warrants careful consideration. SRRE's ability to effectively execute its integrated strategy, strengthen its financial reporting, and successfully compete against larger, more established players will be paramount to unlocking long-term shareholder value in the evolving Chinese market.