Is Skymission Group Holdings (HKG:1429) A Risky Investment?

Simply Wall St · 07/01 22:27

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Skymission Group Holdings Limited (HKG:1429) makes use of debt. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Skymission Group Holdings's Net Debt?

As you can see below, at the end of March 2025, Skymission Group Holdings had HK$60.2m of debt, up from HK$53.7m a year ago. Click the image for more detail. And it doesn't have much cash, so its net debt is about the same.

debt-equity-history-analysis
SEHK:1429 Debt to Equity History July 1st 2025

How Healthy Is Skymission Group Holdings' Balance Sheet?

We can see from the most recent balance sheet that Skymission Group Holdings had liabilities of HK$87.4m falling due within a year, and liabilities of HK$4.74m due beyond that. Offsetting these obligations, it had cash of HK$665.0k as well as receivables valued at HK$343.8m due within 12 months. So it actually has HK$252.4m more liquid assets than total liabilities.

This luscious liquidity implies that Skymission Group Holdings' balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. 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 Skymission Group Holdings 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 Skymission Group Holdings

Over 12 months, Skymission Group Holdings made a loss at the EBIT level, and saw its revenue drop to HK$403m, which is a fall of 34%. That makes us nervous, to say the least.

Caveat Emptor

While Skymission Group Holdings's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping HK$103m. Having said that, the balance sheet has plenty of liquid assets for now. That will give the company some time and space to grow and develop its business as need be. While the stock is probably a bit risky, there may be an opportunity if the business itself improves, allowing the company to stage a recovery. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Skymission Group Holdings (of which 2 are potentially serious!) you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.