Is Hongkong Land Holdings Limited (SGX:H78) As Strong As Its Balance Sheet Indicates?
Hongkong Land Holdings Limited (SGX:H78), a large-cap worth US$16.22b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an adundance of stock in the public market available for trading. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Today I will analyse the latest financial data for H78 to determine is solvency and liquidity and whether the stock is a sound investment.
See our latest analysis for Hongkong Land Holdings
How does H78’s operating cash flow stack up against its debt?
H78 has built up its total debt levels in the last twelve months, from US$3.78b to US$4.89b – this includes both the current and long-term debt. With this increase in debt, H78 currently has US$1.77b remaining in cash and short-term investments for investing into the business. Additionally, H78 has produced US$400.1m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 8.2%, indicating that H78’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In H78’s case, it is able to generate 0.082x cash from its debt capital.
Does H78’s liquid assets cover its short-term commitments?
At the current liabilities level of US$1.97b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$4.86b, with a current ratio of 2.47x. Generally, for Real Estate companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is H78’s debt level acceptable?
H78’s level of debt is appropriate relative to its total equity, at 13.1%. This range is considered safe as H78 is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether H78 is able to meet its debt obligations by looking at the net interest coverage ratio. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. In H78’s case, the ratio of 12.25x suggests that interest is comfortably covered. Large-cap investments like H78 are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
Next Steps:
Although H78’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. I admit this is a fairly basic analysis for H78’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Hongkong Land Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for H78’s future growth? Take a look at our free research report of analyst consensus for H78’s outlook.
Valuation: What is H78 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 H78 is currently mispriced by the market.
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.
