Yahoo Finance Is CK Infrastructure Holdings Limited (HKG:1038) A Financially Sound Company?
CK Infrastructure Holdings Limited (HKG:1038), a large-cap worth HK$153b, comes to mind for investors seeking a strong and reliable stock investment. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to their continued success lies in its financial health. I will provide an overview of CK Infrastructure Holdings’s financial liquidity and leverage to give you an idea of CK Infrastructure Holdings’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into 1038 here.
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Does 1038 produce enough cash relative to debt?
Over the past year, 1038 has ramped up its debt from HK$34b to HK$46b , which comprises of short- and long-term debt. With this growth in debt, 1038 currently has HK$9.6b remaining in cash and short-term investments for investing into the business. Moreover, 1038 has produced HK$2.7b in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 5.9%, indicating that 1038’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1038’s case, it is able to generate 0.059x cash from its debt capital.
Can 1038 meet its short-term obligations with the cash in hand?
Looking at 1038’s most recent HK$9.0b liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.32x. Generally, for Electric Utilities companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can 1038 service its debt comfortably?
1038 is a relatively highly levered company with a debt-to-equity of 43%. This isn’t surprising for large-caps, as equity can often be more expensive to issue than debt, plus interest payments are tax deductible. Accordingly, large companies often have an advantage over small-caps through lower cost of capital due to cheaper financing. By measuring how many times 1038’s earnings can cover interest payments, we can evaluate whether its level of debt is sustainable or not. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. For 1038, the ratio of 4.43x suggests that interest is appropriately covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like 1038 are considered a risk-averse investment.
Next Steps:
1038’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 1038 has been performing in the past. You should continue to research CK Infrastructure Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1038’s future growth? Take a look at our free research report of analyst consensus for 1038’s outlook.
Valuation: What is 1038 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 1038 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.
