Is Sino Haijing Holdings Limited’s (HKG:1106) Balance Sheet A Threat To Its Future?
Sino Haijing Holdings Limited (SEHK:1106) is a small-cap stock with a market capitalization of HK$2.14B. 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? Since 1106 is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into 1106 here.
Does 1106 generate enough cash through operations?
Over the past year, 1106 has ramped up its debt from HK$414.4M to HK$734.4M , which is made up of current and long term debt. With this increase in debt, 1106 currently has HK$22.9M remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can examine some of 1106’s operating efficiency ratios such as ROA here.
Can 1106 meet its short-term obligations with the cash in hand?
With current liabilities at HK$958.7M, it appears that the company is not able to meet these obligations given the level of current assets of HK$788.7M, with a current ratio of 0.82x below the prudent level of 3x.
Does 1106 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 71.78%, 1106 can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since 1106 is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
1106’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 1106’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Sino Haijing Holdings to get a better picture of the stock by looking at:
1. Historical Performance: What has 1106’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.
2. 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.
