Health Check: How Prudently Does Sanai Health Industry Group (HKG:1889) Use Debt?

Simply Wall St · 5d ago

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Sanai Health Industry Group Company Limited (HKG:1889) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Sanai Health Industry Group's Debt?

As you can see below, Sanai Health Industry Group had CN¥40.4m of debt at December 2024, down from CN¥60.9m a year prior. But it also has CN¥340.7m in cash to offset that, meaning it has CN¥300.2m net cash.

debt-equity-history-analysis
SEHK:1889 Debt to Equity History June 10th 2025

A Look At Sanai Health Industry Group's Liabilities

We can see from the most recent balance sheet that Sanai Health Industry Group had liabilities of CN¥114.2m falling due within a year, and liabilities of CN¥3.13m due beyond that. Offsetting this, it had CN¥340.7m in cash and CN¥13.3m in receivables that were due within 12 months. So it can boast CN¥236.6m more liquid assets than total liabilities.

This excess liquidity is a great indication that Sanai Health Industry Group's balance sheet is almost as strong as Fort Knox. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Sanai Health Industry Group 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 you can't view debt in total isolation; since Sanai Health Industry Group 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.

Check out our latest analysis for Sanai Health Industry Group

Over 12 months, Sanai Health Industry Group made a loss at the EBIT level, and saw its revenue drop to CN¥85m, which is a fall of 21%. That makes us nervous, to say the least.

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So How Risky Is Sanai Health Industry Group?

Although Sanai Health Industry Group had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of CN¥11m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. There's no doubt the next few years will be crucial to how the business matures. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Sanai Health Industry Group has 2 warning signs (and 1 which is significant) we think 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.