Is Hubline Berhad (KLSE:HUBLINE) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Hubline Berhad (KLSE:HUBLINE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hubline Berhad's Debt?

As you can see below, at the end of March 2025, Hubline Berhad had RM94.5m of debt, up from RM89.1m a year ago. Click the image for more detail. However, it also had RM41.7m in cash, and so its net debt is RM52.8m.

How Strong Is Hubline Berhad's Balance Sheet?

The latest balance sheet data shows that Hubline Berhad had liabilities of RM124.7m due within a year, and liabilities of RM56.6m falling due after that. Offsetting these obligations, it had cash of RM41.7m as well as receivables valued at RM31.9m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by RM107.7m.

This deficit is considerable relative to its market capitalization of RM171.6m, so it does suggest shareholders should keep an eye on Hubline Berhad's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Hubline Berhad will need earnings to service that debt. 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.

See our latest analysis for Hubline Berhad

In the last year Hubline Berhad had a loss before interest and tax, and actually shrunk its revenue by 13%, to RM189m. That's not what we would hope to see.

Caveat Emptor

While Hubline 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. Indeed, it lost RM14m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through RM24m of cash over the last year. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Hubline Berhad you should be aware of, and 1 of them doesn't sit too well with us.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.