Is GR Properties Limited's (HKG:108) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like GR Properties Limited (HKG:108), with a market cap of HK$1.46b. However, an important fact which most ignore is: how financially healthy is the business? Given that 108 is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 108 here.

How does 108’s operating cash flow stack up against its debt?

108's debt levels surged from HK$214.37m to HK$843.29m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, 108's cash and short-term investments stands at HK$723.89m , 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 examine some of 108’s operating efficiency ratios such as ROA here.

Does 108’s liquid assets cover its short-term commitments?

Looking at 108’s most recent HK$565.50m liabilities, the company has been able to meet these commitments with a current assets level of HK$969.81m, leading to a 1.71x current account ratio. Usually, for Real Estate companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can 108 service its debt comfortably?

108 is a relatively highly levered company with a debt-to-equity of 76.05%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since 108 is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

108’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 an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 108's financial health. Other important fundamentals need to be considered alongside. You should continue to research GR Properties to get a better picture of the stock by looking at:

1. Valuation: What is 108 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 108 is currently mispriced by the market.
2. Historical Performance: What has 108'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.
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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.