How Financially Strong Is Boer Power Holdings Limited (HKG:1685)?
Investors are always looking for growth in small-cap stocks like Boer Power Holdings Limited (SEHK:1685), with a market cap of HK$1.48B. However, an important fact which most ignore is: how financially healthy is the business? Given that 1685 is not presently profitable, it’s vital 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 suggest you dig deeper yourself into 1685 here.
Does 1685 generate an acceptable amount of cash through operations?
1685’s debt levels have fallen from CN¥1,878.1M to CN¥1,691.0M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at CN¥30.8M , ready to deploy into the business. Additionally, 1685 has produced CN¥135.3M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 8.00%, indicating that 1685’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In 1685’s case, it is able to generate 0.08x cash from its debt capital.
Can 1685 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥2,172.0M liabilities, the company has been able to meet these obligations given the level of current assets of CN¥3,382.0M, with a current ratio of 1.56x. Usually, for Electrical companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 1685 face the risk of succumbing to its debt-load?
1685 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 1685 is currently loss-making, there’s a question of sustainability of its current operations. 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, 1685 has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. This is only a rough assessment of financial health, and I’m sure 1685 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Boer Power Holdings to get a better picture of the stock by looking at:
1. Valuation: What is 1685 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 1685 is currently mispriced by the market.
2. Historical Performance: What has 1685’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.
