How Financially Strong Is China New City Commercial Development Limited (HKG:1321)?
Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Investors are always looking for growth in small-cap stocks like China New City Commercial Development Limited (HKG:1321), with a market cap of HK$2.0b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into 1321 here.
Does 1321 produce enough cash relative to debt?
1321’s debt levels have fallen from CN¥3.4b to CN¥3.2b over the last 12 months , which also accounts for long term debt. With this reduction in debt, the current cash and short-term investment levels stands at CN¥618m , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 1321’s operating efficiency ratios such as ROA here.
Does 1321’s liquid assets cover its short-term commitments?
With current liabilities at CN¥6.5b, the company may not be able to easily meet these obligations given the level of current assets of CN¥5.2b, with a current ratio of 0.8x.
Can 1321 service its debt comfortably?
1321 is a relatively highly levered company with a debt-to-equity of 53%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
1321’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for 1321’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research China New City Commercial Development to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1321’s future growth? Take a look at our free research report of analyst consensus for 1321’s outlook.
Valuation: What is 1321 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 1321 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
