Is Sun Hung Kai Properties Limited (HKG:16) A Financially Strong Company?
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Investors looking for stocks with high market liquidity and little debt on the balance sheet should consider Sun Hung Kai Properties Limited (HKG:16). With a market valuation of HK$384b, 16 is a safe haven in times of market uncertainty due to its strong balance sheet. In times of low liquidity in the market, these firms won’t be left high and dry. They are also relatively unaffected by increases in interest rates. Using the most recent data for 16, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
See our latest analysis for Sun Hung Kai Properties
How much cash does 16 generate through its operations?
Over the past year, 16 has ramped up its debt from HK$67b to HK$92b , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$27b , ready to deploy into the business. Moreover, 16 has produced cash from operations of HK$7.4b over the same time period, resulting in an operating cash to total debt ratio of 8.0%, meaning that 16’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 16’s case, it is able to generate 0.08x cash from its debt capital.
Can 16 pay its short-term liabilities?
With current liabilities at HK$66b, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.39x. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Can 16 service its debt comfortably?
With debt at 17% of equity, 16 may be thought of as appropriately levered. 16 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 16’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 16’s case, the ratio of 25.5x suggests that interest is amply covered. High interest coverage serves as an indication of the safety of a company, which highlights why many large organisations like 16 are considered a risk-averse investment.
Next Steps:
16’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 16 has been performing in the past. I recommend you continue to research Sun Hung Kai Properties to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 16’s future growth? Take a look at our free research report of analyst consensus for 16’s outlook.
Valuation: What is 16 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 16 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.
