Xinyi Glass Holdings Limited (HKG:868): Time For A Financial Health Check
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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Xinyi Glass Holdings Limited (HKG:868), with a market cap of HK$33b, often get neglected by retail investors. However, history shows that overlooked mid-cap companies have performed better on a risk-adjusted manner than the smaller and larger segment of the market. 868’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. Don’t forget that this is a general and concentrated examination of Xinyi Glass Holdings’s financial health, so you should conduct further analysis into 868 here.
See our latest analysis for Xinyi Glass Holdings
868’s Debt (And Cash Flows)
Over the past year, 868 has ramped up its debt from HK$8.5b to HK$10.0b – this includes long-term debt. With this growth in debt, 868 currently has HK$4.7b remaining in cash and short-term investments to keep the business going. On top of this, 868 has produced cash from operations of HK$4.6b during the same period of time, leading to an operating cash to total debt ratio of 47%, indicating that 868’s debt is appropriately covered by operating cash.
Does 868’s liquid assets cover its short-term commitments?
Looking at 868’s HK$6.6b in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.39x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Auto Components companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does 868 face the risk of succumbing to its debt-load?
With debt reaching 53% of equity, 868 may be thought of as relatively highly levered. 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 868's case, the ratio of 27.4x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 868’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although 868’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 868's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure 868 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Xinyi Glass Holdings to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 868’s future growth? Take a look at our free research report of analyst consensus for 868’s outlook.
Valuation: What is 868 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 868 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.
