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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Shimao Property Holdings Limited (HKG:813), with a market cap of HK$50.5b, often get neglected by retail investors. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at 813’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Shimao Property Holdings’s financial health, so you should conduct further analysis into 813 here.
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How does 813’s operating cash flow stack up against its debt?
813’s debt levels surged from CN¥79.3b to CN¥110.8b over the last 12 months – this includes both the current and long-term debt. With this rise in debt, 813 currently has CN¥31.0b remaining in cash and short-term investments for investing into the business. On top of this, 813 has produced cash from operations of CN¥8.0b during the same period of time, resulting in an operating cash to total debt ratio of 7.2%, meaning that 813’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 813’s case, it is able to generate 0.072x cash from its debt capital.
Can 813 pay its short-term liabilities?
Looking at 813’s most recent CN¥154.1b liabilities, the company has been able to meet these commitments with a current assets level of CN¥247.1b, leading to a 1.6x current account ratio. Usually, for Real Estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 813 face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, 813 is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
813’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 813’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Shimao Property Holdings to get a better picture of the stock by looking at: