Stock Analysis

Is AT Systematization Berhad (KLSE:AT) A Risky Investment?

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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, AT Systematization Berhad (KLSE:AT) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for AT Systematization Berhad

What Is AT Systematization Berhad's Debt?

The chart below, which you can click on for greater detail, shows that AT Systematization Berhad had RM74.7m in debt in December 2022; about the same as the year before. But on the other hand it also has RM91.7m in cash, leading to a RM17.1m net cash position.

KLSE:AT Debt to Equity History March 21st 2023

A Look At AT Systematization Berhad's Liabilities

We can see from the most recent balance sheet that AT Systematization Berhad had liabilities of RM121.9m falling due within a year, and liabilities of RM9.58m due beyond that. On the other hand, it had cash of RM91.7m and RM34.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM4.82m.

Since publicly traded AT Systematization Berhad shares are worth a total of RM60.0m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, AT Systematization Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is AT Systematization Berhad's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, AT Systematization Berhad made a loss at the EBIT level, and saw its revenue drop to RM64m, which is a fall of 19%. We would much prefer see growth.

So How Risky Is AT Systematization Berhad?

Although AT Systematization Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM7.7m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example AT Systematization Berhad has 4 warning signs (and 2 which are concerning) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

Valuation is complex, but we're helping make it simple.

Find out whether AT Systematization Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.