What You Must Know About Yuzhou Properties Company Limited’s (HKG:1628) Financial Strength
Stocks with market capitalization between $2B and $10B, such as Yuzhou Properties Company Limited (SEHK:1628) with a size of HK$21.30B, do not attract as much attention from the investing community as do the small-caps and large-caps. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at 1628’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 1628 here. See our latest analysis for Yuzhou Properties
Does 1628 generate enough cash through operations?
1628 has built up its total debt levels in the last twelve months, from CN¥20.08B to CN¥25.79B , which comprises of short- and long-term debt. With this growth in debt, 1628 currently has CN¥15.60B remaining in cash and short-term investments for investing into the business. On top of this, 1628 has generated cash from operations of CN¥5.90B over the same time period, resulting in an operating cash to total debt ratio of 22.88%, meaning that 1628’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1628’s case, it is able to generate 0.23x cash from its debt capital.
Does 1628’s liquid assets cover its short-term commitments?
With current liabilities at CN¥35.33B, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.47x. Usually, for Real Estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 1628 face the risk of succumbing to its debt-load?
1628 is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether 1628 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 1628’s, case, the ratio of 29.87x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 1628’s high interest coverage is seen as responsible and safe practice.
Next Steps:
At its current level of cash flow coverage, 1628 has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 1628 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Yuzhou Properties to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for 1628’s future growth? Take a look at our free research report of analyst consensus for 1628’s outlook.
2. Valuation: What is 1628 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 1628 is currently mispriced by the market.
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.
