- Hong Kong
- Real Estate
We're Hopeful That Asiasec Properties (HKG:271) Will Use Its Cash Wisely
Just because a business does not make any money, does not mean that the stock will go down. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
So should Asiasec Properties (HKG:271) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
Check out our latest analysis for Asiasec Properties
How Long Is Asiasec Properties' Cash Runway?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2022, Asiasec Properties had cash of HK$166m and no debt. In the last year, its cash burn was HK$10m. That means it had a cash runway of very many years as of June 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.
How Well Is Asiasec Properties Growing?
One thing for shareholders to keep front in mind is that Asiasec Properties increased its cash burn by 243% in the last twelve months. As if that's not bad enough, the operating revenue also dropped by 11%, making us very wary indeed. Considering these two factors together makes us nervous about the direction the company seems to be heading. Of course, we've only taken a quick look at the stock's growth metrics, here. You can take a look at how Asiasec Properties has developed its business over time by checking this visualization of its revenue and earnings history.
How Hard Would It Be For Asiasec Properties To Raise More Cash For Growth?
Asiasec Properties seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Since it has a market capitalisation of HK$372m, Asiasec Properties' HK$10m in cash burn equates to about 2.8% of its market value. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.
How Risky Is Asiasec Properties' Cash Burn Situation?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Asiasec Properties' cash runway was relatively promising. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 3 warning signs for Asiasec Properties (of which 1 is significant!) you should know about.
Of course Asiasec Properties may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.
Asiasec Properties Limited, an investment holding company, engages in the property investment, property leasing, and estate management businesses primarily in Hong Kong.
Flawless balance sheet with weak fundamentals.