Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Henderson Land Development Company Limited (HKG:12). With a market valuation of HK$173b, 12 is a safe haven in times of market uncertainty due to its strong balance sheet. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for 12, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
View our latest analysis for Henderson Land Development
How does 12’s operating cash flow stack up against its debt?
12’s debt levels surged from HK$80b to HK$89b over the last 12 months , which accounts for long term debt. With this growth in debt, 12’s cash and short-term investments stands at HK$18b for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of 12’s operating efficiency ratios such as ROA here.
Can 12 meet its short-term obligations with the cash in hand?
With current liabilities at HK$52b, it appears that the company has been able to meet these commitments with a current assets level of HK$135b, leading to a 2.59x current account ratio. Generally, for Real Estate companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 12 face the risk of succumbing to its debt-load?
With debt at 29% of equity, 12 may be thought of as appropriately levered. This range is considered safe as 12 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if 12’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 12’s case, the ratio of 16.21x suggests that interest is comfortably covered. Large-cap investments like 12 are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
12’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 12 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Henderson Land Development to get a better picture of the stock by looking at: