SiS International Holdings Limited (HKG:529) is a small-cap stock with a market capitalization of HK$1.20b. 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? Electronic companies, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into 529 here.
How does 529’s operating cash flow stack up against its debt?
529’s debt levels surged from HK$2.34b to HK$3.41b over the last 12 months – this includes both the current and long-term debt. With this growth in debt, 529 currently has HK$619.0m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 529’s operating efficiency ratios such as ROA here.
Can 529 pay its short-term liabilities?
At the current liabilities level of HK$2.95b liabilities, it appears that the company has not been able to meet these commitments with a current assets level of HK$2.75b, leading to a 0.93x current account ratio. which is under the appropriate industry ratio of 3x.
Can 529 service its debt comfortably?
529 is a relatively highly levered company with a debt-to-equity of 92.4%. This is not uncommon for a small-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 529’s case, the ratio of 2.19x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
529’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure 529 has company-specific issues impacting its capital structure decisions. You should continue to research SiS International Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 529’s future growth? Take a look at our free research report of analyst consensus for 529’s outlook.
- Historical Performance: What has 529’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 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 email@example.com.