Is China Oriental Group Company Limited (HKG:581) As Strong As Its Balance Sheet Indicates?

Stocks with market capitalization between $2B and $10B, such as China Oriental Group Company Limited (HKG:581) with a size of HK$19b, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. 581’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. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into 581 here.

View our latest analysis for China Oriental Group

581’s Debt (And Cash Flows)

581’s debt level has been constant at around CN¥1.9b over the previous year including long-term debt. At this current level of debt, 581 currently has CN¥6.3b remaining in cash and short-term investments to keep the business going. On top of this, 581 has produced cash from operations of CN¥5.4b during the same period of time, leading to an operating cash to total debt ratio of 285%, signalling that 581’s current level of operating cash is high enough to cover debt.

Does 581’s liquid assets cover its short-term commitments?

Looking at 581’s CN¥9.4b in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.76x. The current ratio is the number you get when you divide current assets by current liabilities. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

SEHK:581 Historical Debt, March 28th 2019
SEHK:581 Historical Debt, March 28th 2019

Is 581’s debt level acceptable?

581’s level of debt is appropriate relative to its total equity, at 11%. 581 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.

Next Steps:

581’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 581 has been performing in the past. I suggest you continue to research China Oriental Group to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for 581’s future growth? Take a look at our free research report of analyst consensus for 581’s outlook.
  2. Valuation: What is 581 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 581 is currently mispriced by the market.
  3. 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.