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Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as China Communications Services Corporation Limited (HKG:552) with a market-capitalization of HK$43b, rarely draw their attention. 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 552’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 552 here.
Check out our latest analysis for China Communications Services
552’s Debt (And Cash Flows)
552's debt levels surged from CN¥327m to CN¥471m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at CN¥21b , ready to be used for running the business. Additionally, 552 has produced CN¥4.3b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 905%, signalling that 552’s debt is appropriately covered by operating cash.
Can 552 pay its short-term liabilities?
At the current liabilities level of CN¥47b, it seems that the business has been able to meet these obligations given the level of current assets of CN¥69b, with a current ratio of 1.47x. The current ratio is the number you get when you divide current assets by current liabilities. For Construction companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does 552 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 1.4%, 552's debt level is relatively low. 552 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
552’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 552 has been performing in the past. You should continue to research China Communications Services to get a more holistic view of the stock by looking at: