What You Must Know About Tianjin Development Holdings Limited’s (HKG:882) Financial Strength
Tianjin Development Holdings Limited (SEHK:882) is a small-cap stock with a market capitalization of HK$3.87B. 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 essential, since poor capital management may bring about 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. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into 882 here.
Does 882 generate enough cash through operations?
882 has shrunken its total debt levels in the last twelve months, from HK$3.08B to HK$2.31B , which is made up of current and long term debt. With this debt repayment, 882 currently has HK$6.42B remaining in cash and short-term investments for investing into the business. Moreover, 882 has produced HK$8.81M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 0.38%, indicating that 882’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 882’s case, it is able to generate 0.0038x cash from its debt capital.
Can 882 meet its short-term obligations with the cash in hand?
With current liabilities at HK$5.31B, the company has been able to meet these commitments with a current assets level of HK$9.81B, leading to a 1.85x current account ratio. For Integrated Utilities companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 882 service its debt comfortably?
882’s level of debt is appropriate relative to its total equity, at 16.21%. This range is considered safe as 882 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether 882 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 882’s, case, the ratio of 0.29x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
882’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 882’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tianjin Development Holdings to get a more holistic view of the stock by looking at:
1. Valuation: What is 882 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 882 is currently mispriced by the market.
2. Historical Performance: What has 882’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.
