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Are Shimao Property Holdings Limited's (HKG:813) Interest Costs Too High?

Simply Wall St

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Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Shimao Property Holdings Limited (HKG:813), with a market capitalization of HK$76b, rarely draw their attention from the investing community. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine 813’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending 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 813 here.

View our latest analysis for Shimao Property Holdings

813’s Debt (And Cash Flows)

Over the past year, 813 has ramped up its debt from CN¥100b to CN¥127b , which includes long-term debt. With this rise in debt, 813 currently has CN¥44b remaining in cash and short-term investments , ready to be used for running the business. On top of this, 813 has produced cash from operations of CN¥2.2b over the same time period, resulting in an operating cash to total debt ratio of 1.7%, meaning that 813’s operating cash is less than its debt.

Can 813 meet its short-term obligations with the cash in hand?

Looking at 813’s CN¥188b in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.54x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Real Estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

SEHK:813 Historical Debt, July 19th 2019

Can 813 service its debt comfortably?

Since total debt growth have outpaced equity growth, 813 is a highly leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

Although 813’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 813's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure 813 has company-specific issues impacting its capital structure decisions. You should continue to research Shimao Property Holdings to get a better picture of the mid-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 813’s future growth? Take a look at our free research report of analyst consensus for 813’s outlook.
  2. Valuation: What is 813 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 813 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.