What does Teamway International Group Holdings Limited’s (HKG:1239) Balance Sheet Tell Us Abouts Its Future?
Investors are always looking for growth in small-cap stocks like Teamway International Group Holdings Limited (SEHK:1239), with a market cap of HK$551.67M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 1239 here.
Does 1239 generate an acceptable amount of cash through operations?
1239 has built up its total debt levels in the last twelve months, from CN¥170.0M to CN¥233.9M , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at CN¥162.9M for investing into the business. Additionally, 1239 has produced cash from operations of CN¥102.8M over the same time period, resulting in an operating cash to total debt ratio of 43.95%, indicating that 1239’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1239’s case, it is able to generate 0.44x cash from its debt capital.
Can 1239 pay its short-term liabilities?
Looking at 1239’s most recent CN¥392.6M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of CN¥325.1M, leading to a 0.83x current account ratio. which is under the appropriate industry ratio of 3x.
Can 1239 service its debt comfortably?
Since total debt levels have outpaced equities, 1239 is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if 1239’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 1239, the ratio of 3.66x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Although 1239’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether short term obligations can be met in time, and raising further debt to meet these expenses could be challenging. I admit this is a fairly basic analysis for 1239’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Teamway International Group Holdings to get a better picture of the stock by looking at:
1. Valuation: What is 1239 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1239 is currently mispriced by the market.
2. Historical Performance: What has 1239’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
