Auditors Have Doubts About Sarawak Cable Berhad (KLSE:SCABLE)

The harsh reality for Sarawak Cable Berhad (KLSE:SCABLE) shareholders is that its auditors, Ernst & Young LLP, expressed doubts about its ability to continue as a going concern, in its reported results to March 2021. Thus we can say that, based on the results to that date, the company should raise capital or otherwise raise cash, without much delay.

Since the company probably needs cash fairly quickly, it may be in a position where it has to accept whatever terms it can get. So shareholders should absolutely be taking a close look at how risky the balance sheet is. The big consideration is whether it can repay its debt, since in the worst case scenario, creditors could force the company to bankruptcy.

See our latest analysis for Sarawak Cable Berhad

How Much Debt Does Sarawak Cable Berhad Carry?

The image below, which you can click on for greater detail, shows that Sarawak Cable Berhad had debt of RM453.4m at the end of March 2021, a reduction from RM484.0m over a year. On the flip side, it has RM39.9m in cash leading to net debt of about RM413.5m.

How Strong Is Sarawak Cable Berhad's Balance Sheet?

According to the last reported balance sheet, Sarawak Cable Berhad had liabilities of RM513.5m due within 12 months, and liabilities of RM90.7m due beyond 12 months. On the other hand, it had cash of RM39.9m and RM169.6m worth of receivables due within a year. So its liabilities total RM394.7m more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the RM111.0m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Sarawak Cable Berhad would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is Sarawak Cable 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.

In the last year Sarawak Cable Berhad had a loss before interest and tax, and actually shrunk its revenue by 23%, to RM586m. That makes us nervous, to say the least.

Caveat Emptor

While Sarawak Cable Berhad's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at RM9.8m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it lost RM26m in just last twelve months, and it doesn't have much by way of liquid assets. So while it's not wise to assume the company will fail, we do think it's risky. We prefer to avoid a company after its auditor has expressed any uncertainty about its ability to continue as a going concern. That's because we find it more comfortable to invest in companies that always keep the balance sheet reasonably strong. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Sarawak Cable Berhad (of which 2 don't sit too well with us!) you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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