Could The Yuanda China Holdings Limited (HKG:2789) Ownership Structure Tell Us Something Useful?

The big shareholder groups in Yuanda China Holdings Limited (HKG:2789) have power over the company. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones. Warren Buffett said that he likes ‘a business with enduring competitive advantages that is run by able and owner-oriented people’. So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Yuanda China Holdings is a smaller company with a market capitalization of HK$646m, so it may still be flying under the radar of many institutional investors. Our analysis of the ownership of the company, below, shows that institutional investors have not yet purchased shares. Let’s take a closer look to see what the different types of shareholder can tell us about Yuanda China Holdings.

View 3 warning signs we detected for Yuanda China Holdings

SEHK:2789 Ownership Summary, January 3rd 2020
SEHK:2789 Ownership Summary, January 3rd 2020

What Does The Lack Of Institutional Ownership Tell Us About Yuanda China Holdings?

We don’t tend to see institutional investors holding stock of companies that are very risky, thinly traded, or very small. Though we do sometimes see large companies without institutions on the register, it’s not particularly common.

There are multiple explanations for why institutions don’t own a stock. The most common is that the company is too small relative to fund under management, so the institition does not bother to look closely at the company. Alternatively, there might be something about the company that has kept institutional investors away. Yuanda China Holdings’s earnings and revenue track record (below) may not be compelling to institutional investors — or they simply might not have looked at the business closely.

SEHK:2789 Income Statement, January 3rd 2020
SEHK:2789 Income Statement, January 3rd 2020

We note that hedge funds don’t have a meaningful investment in Yuanda China Holdings. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In Yuanda China Holdings’s case, its Top Key Executive, Baohua Kang, is the largest shareholder, holding 59% of shares outstanding. The second and third largest shareholders are Norges Bank Investment Management and Futao Liu, holding 0.2% and 0.06%, respectively. Interestingly, Futao Liu is also a Member of the Board of Directors, again, indicating strong insider ownership amongst the company’s top shareholders.

Researching institutional ownership is a good way to gauge and filter a stock’s expected performance. The same can be achieved by studying analyst sentiments. We’re not picking up on any analyst coverage of the stock at the moment, so the company is unlikely to be widely held.

Insider Ownership Of Yuanda China Holdings

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our most recent data indicates that insiders own the majority of Yuanda China Holdings Limited. This means they can collectively make decisions for the company. So they have a HK$379m stake in this HK$646m business. Ownership is clearly an important issue when it comes to investment selection. However, there are many other factors to consider, such as the risks within the company itself. For example, we’ve discovered 3 warning signs for Yuanda China Holdings (of which 1 is major) which any shareholder or potential investor should be aware of.

General Public Ownership

The general public, with a 41% stake in the company, will not easily be ignored. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too.

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.