Yahoo Finance What You Must Know About Hwa Hong Corporation Limited’s (SGX:H19) Financial Strength
Hwa Hong Corporation Limited (SGX:H19) is a small-cap stock with a market capitalization of S$212.21M. 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, as mismanagement of capital can lead to 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. However, I know these factors are very high-level, so I recommend you dig deeper yourself into H19 here.
Does H19 generate enough cash through operations?
H19 has shrunken its total debt levels in the last twelve months, from S$68.92M to S$53.18M , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at S$50.68M for investing into the business. Additionally, H19 has generated cash from operations of S$7.86M in the last twelve months, leading to an operating cash to total debt ratio of 14.78%, indicating that H19’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 H19’s case, it is able to generate 0.15x cash from its debt capital.
Can H19 meet its short-term obligations with the cash in hand?
Looking at H19’s most recent S$60.57M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of S$61.10M, with a current ratio of 1.01x. 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 H19 face the risk of succumbing to its debt-load?
With debt at 34.16% of equity, H19 may be thought of as appropriately levered. This range is considered safe as H19 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether H19 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 H19’s, case, the ratio of 3.42x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as H19’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although H19’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure H19 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hwa Hong to get a better picture of the stock by looking at:
Valuation: What is H19 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 H19 is currently mispriced by the market.
Historical Performance: What has H19’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.
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.
