A meteoric 166% surge this month in Sunac China Holdings Ltd.’s shares may be due for a reversal given that the distressed developer’s fundamentals remain weak, analysts say.

Once the country’s fourth-largest builder by sales, Sunac has become the top performer in a gauge of Chinese property stocks in September, putting it on track for its best month on record. The gains trounce the 4.9% rise in the developer index as well as an advance in a broader Chinese equities benchmark.

A confluence of factors were behind the surge, including Sunac’s inclusion into a stock trading links between Hong Kong and mainland exchanges, progress in its offshore debt restructuring and Beijing’s widening property rescue campaign. Still, the rally is drawing a growing number of skeptics, citing the company’s weak earnings and dollar bonds staying at deeply distressed levels.

There’s a “pretty different investor base between bonds and stocks,” said Willer Chen, senior research analyst at Forsyth Barr Asia Ltd., adding the current stock rally is “honestly just speculation” and there’s “no real money out there.”

Sunac’s dollar bonds are indicated between 10 and 15 cents, according to prices compiled by Bloomberg, indicating extremely low expectations from investors to recover losses from the developer’s defaulted debt. The pessimism has persisted despite Sunac’s recent success in winning creditor approval for its offshore debt overhaul blueprint, as well as a move to seek court protection for its US assets.

Of an estimated $10.2 billion of creditor claims, $5.7 billion of those would be compensated with new dollar bonds, according to a Sunac exchange filing Wednesday. The remainder will be settled through getting shares of its property-management arm and convertible notes. Sunac first defaulted on a dollar bond in May 2022, contributing to a record wave of delinquencies as the country’s housing crisis unfolded.

Analysts have also remained cautious about the company’s earnings prospects after it reported a narrower but still steep 15.4 billion yuan ($2.1 billion) net loss for the first half.

“Sunac’s year-to-August sales value declined by over 50% year-on-year, suggesting elevated pressure on cash flow,” said Jeff Zhang, an analyst at Morningstar Inc. “If sales figures do not materially improve over time, the current run-up may be short-lived.”

Despite the recent rally, Sunac’s shares remain 45% lower than the level before they resumed trading in April following a yearlong suspension.

Analysts at JPMorgan Chase & Co. and Citigroup Inc. — the two remaining brokerages that cover the stock — have price targets 76% and 48% below the current level, respectively.

The future of Sunac, as well as other defaulted Chinese developers, depends on “how they deliver the unfinished projects, and what kind of assets and cash reserves are left for them after the restructuring period,” said Forsyth Barr’s Chen. “It’s a really long period for them.”

(Updates stock performance throughout and adds debt-restructuring compensation in the sixth paragraph.)