We Think Shin Yang Shipping Corporation Berhad (KLSE:SYSCORP) Has A Fair Chunk Of Debt

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. Importantly, Shin Yang Shipping Corporation Berhad (KLSE:SYSCORP) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Shin Yang Shipping Corporation Berhad

What Is Shin Yang Shipping Corporation Berhad's Debt?

You can click the graphic below for the historical numbers, but it shows that Shin Yang Shipping Corporation Berhad had RM283.5m of debt in September 2020, down from RM354.0m, one year before. However, because it has a cash reserve of RM124.4m, its net debt is less, at about RM159.1m.

A Look At Shin Yang Shipping Corporation Berhad's Liabilities

Zooming in on the latest balance sheet data, we can see that Shin Yang Shipping Corporation Berhad had liabilities of RM365.5m due within 12 months and liabilities of RM111.6m due beyond that. On the other hand, it had cash of RM124.4m and RM154.2m worth of receivables due within a year. So its liabilities total RM198.5m more than the combination of its cash and short-term receivables.

Shin Yang Shipping Corporation Berhad has a market capitalization of RM379.6m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Shin Yang Shipping Corporation Berhad will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Shin Yang Shipping Corporation Berhad made a loss at the EBIT level, and saw its revenue drop to RM563m, which is a fall of 14%. That's not what we would hope to see.

Caveat Emptor

Not only did Shin Yang Shipping Corporation Berhad's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping RM114m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of RM129m into a profit. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Shin Yang Shipping Corporation Berhad (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

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.

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This article by Simply Wall St is general in nature. 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.
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