Is Chen Xing Development Holdings (HKG:2286) Using Debt Sensibly?
Chen Xing Development Holdings (HKG:2286) carries significant debt, with CN¥2.78b in liabilities and a net debt of CN¥2.65b after accounting for cash reserves. The company's balance sheet shows a concerning deficit of CN¥6.92b against its cash and receivables. With a revenue decline of 81% and an EBIT loss of CN¥126m, the financial outlook appears risky. Analysts express caution, highlighting the need for potential recapitalization and warning of four significant risks associated with the stock.
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. Importantly, Chen Xing Development Holdings Limited (HKG:2286) does carry debt. But the more important question is: how much risk is that debt creating?
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When Is Debt Dangerous?
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. 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 Chen Xing Development Holdings's Net Debt?
The chart below, which you can click on for greater detail, shows that Chen Xing Development Holdings had CN¥2.78b in debt in June 2025; about the same as the year before. However, because it has a cash reserve of CN¥124.5m, its net debt is less, at about CN¥2.65b.
How Strong Is Chen Xing Development Holdings' Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Chen Xing Development Holdings had liabilities of CN¥5.52b due within 12 months and liabilities of CN¥2.20b due beyond that. Offsetting these obligations, it had cash of CN¥124.5m as well as receivables valued at CN¥681.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CN¥6.92b.
This deficit casts a shadow over the CN¥133.4m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Chen Xing Development Holdings would probably need a major re-capitalization if its creditors were to demand repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is Chen Xing Development Holdings'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.
Check out our latest analysis for Chen Xing Development Holdings
In the last year Chen Xing Development Holdings had a loss before interest and tax, and actually shrunk its revenue by 81%, to CN¥212m. That makes us nervous, to say the least.
Caveat Emptor
While Chen Xing Development 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. Indeed, it lost a very considerable CN¥126m at the EBIT level. Reflecting on this and the significant total liabilities, it's hard to know what to say about the stock because of our intense dis-affinity for it. Sure, the company might have a nice story about how they are going on to a brighter future. But the reality is that it is low on liquid assets relative to liabilities, and it lost CN¥279m in the last year. So we're not very excited about owning this stock. Its too risky for us. 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 Chen Xing Development Holdings has 4 warning signs (and 2 which are 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.
