Yahoo Finance Are China Resources Power Holdings Company Limited’s (HKG:836) Interest Costs Too High?
Mid-caps stocks, like China Resources Power Holdings Company Limited (HKG:836) with a market capitalization of HK$60.4b, aren’t the focus of most investors who prefer to direct their investments towards either large-cap or small-cap stocks. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. 836’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into 836 here.
Check out our latest analysis for China Resources Power Holdings
How much cash does 836 generate through its operations?
836’s debt levels surged from HK$103.2b to HK$110.3b over the last 12 months , which is made up of current and long term debt. With this increase in debt, 836 currently has HK$8.1b remaining in cash and short-term investments for investing into the business. Moreover, 836 has generated HK$18.6b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 17%, indicating that 836’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 836’s case, it is able to generate 0.17x cash from its debt capital.
Can 836 pay its short-term liabilities?
With current liabilities at HK$75.2b, it appears that the company may not be able to easily meet these obligations given the level of current assets of HK$34.8b, with a current ratio of 0.46x.
Does 836 face the risk of succumbing to its debt-load?
836 is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 836’s case, the ratio of 4.04x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
836’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for 836’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research China Resources Power Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 836’s future growth? Take a look at our free research report of analyst consensus for 836’s outlook.
Valuation: What is 836 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 836 is currently mispriced by the market.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
