Investors are always looking for growth in small-cap stocks like Regal International Group Ltd (SGX:UV1), with a market cap of S$32.61M. However, an important fact which most ignore is: how financially healthy is the business? Since UV1 is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into UV1 here.
Does UV1 generate enough cash through operations?
Over the past year, UV1 has ramped up its debt from RM61.96M to RM87.23M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at RM9.38M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of UV1’s operating efficiency ratios such as ROA here.
Can UV1 pay its short-term liabilities?
Looking at UV1’s most recent RM199.02M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of RM258.95M, with a current ratio of 1.3x. Generally, for Real Estate companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can UV1 service its debt comfortably?
UV1 is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since UV1 is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
At its current level of cash flow coverage, UV1 has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how UV1 has been performing in the past. You should continue to research Regal International Group to get a better picture of the stock by looking at: