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CHLN cash position disappoints

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burning_cash June 9, 2010 (Linette Ng) Cash position of China Housing & Land Development (NASDAQ:CHLN) is a little tricky. It looks great from the first sight by looking at "cash at the end of period". However further analysis reveals that most of free cash is not provided from operating activities...

Chart 1: Cash provided by operating activities vs Cash at end of period

CHLN_cash1_LG_1

China Housing & Land Development (NASDAQ:CHLN) 2010 first quarter end of period cash balance was $66.3m, which is an increase of 80% from $36.9m in last quarter of 2009. However, despite the consistent increase in the end of period cash balance since second quarter of 2009, cash from operating activities has been fairly mediocre in the last four quarters, as represented by the blue line in chart 1. This implies that it has been sourced from other activities. In chart 2 below, cash from investing activities appears to be fairly constant over time, while in chart 3, the red line shows that cash from financing activities has followed a similar rising trend as the cash at end of period.


Chart 2: Cash from investing activities Vs Cash at end of period

CHLN_cash1_LG_2

Chart 3: Cash from financing activities Vs Cash at end of period

CHLN_cash1_LG_3

A comparison of Chart 1 and Chart 3 highlights some key characteristics between cash from operating activities and cash from financing activities. Throughout 2008, cash from operating activities has been in the negatives, yet in fourth quarter of 2008 there is a notable increase in cash at end of period. This can be reconciled by Chart 3, where the red line at December 08 shows that there is a significant increase in cash from financing activities, derived from investment and advances from non-controlling interest shareholders amounting to approximately $29m.

Likewise, in the most recent quarter, cash from operating activities dropped from $12.9m to $0.16m, yet end of period cash increased by 80%. Chart 3 demonstrates that this rise is primarily a result of the $30m net cash provided by financing activities, comprising of bank loans. This may be a cause for concern because it suggests that the company is relying quite substantially on financing activities to maintain its liquidity.



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