How Financially Strong Is Zhong An Real Estate Limited (HKG:672)?
Zhong An Real Estate Limited (HKG:672) is a small-cap stock with a market capitalization of HK$1.98b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into 672 here.
Does 672 produce enough cash relative to debt?
672’s debt levels surged from CN¥4.97b to CN¥5.33b over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CN¥1.10b , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 672’s operating efficiency ratios such as ROA here.
Can 672 meet its short-term obligations with the cash in hand?
Looking at 672’s most recent CN¥14.39b liabilities, the company has been able to meet these obligations given the level of current assets of CN¥17.01b, with a current ratio of 1.18x. 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.
Is 672’s debt level acceptable?
672 is a relatively highly levered company with a debt-to-equity of 57.6%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
672’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 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 672 has been performing in the past. I suggest you continue to research Zhong An Real Estate to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 672’s future growth? Take a look at our free research report of analyst consensus for 672’s outlook.
Historical Performance: What has 672’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.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
