Substract does not create a round hole on a circular surface.
Solution
The Cormal Cutout command is designed to work with curved / circular surfaces. The regular Cutout and Subtract work better with planner surfaces. Try using a Normal Cutout instead of the substract and the result will be correct.
Notes and References
Hardware/Software Configuration
Platform: INTEL
OS: windows
OS Version: 10_1511
Product: SOLID_EDGE
Application: PART/SHEETMETAL
Version: V221.0
Function: FEATURES
Ref: 001-10070359