Do Directors Own Zhong Hua International Holdings Limited (HKG:1064) Shares?

If you want to know who really controls Zhong Hua International Holdings Limited (HKG:1064), then you’ll have to look at the makeup of its share registry. Institutions will often hold stock in bigger companies, and we expect to see insiders owning a noticeable percentage of the smaller ones. I quite like to see at least a little bit of insider ownership. As Charlie Munger said ‘Show me the incentive and I will show you the outcome.

Zhong Hua International Holdings is not a large company by global standards. It has a market capitalization of HK$109m, which means it wouldn’t have the attention of many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutions are not on the share registry. Let’s delve deeper into each type of owner, to discover more about Zhong Hua International Holdings.

See our latest analysis for Zhong Hua International Holdings

SEHK:1064 Ownership Summary, March 25th 2020
SEHK:1064 Ownership Summary, March 25th 2020

What Does The Lack Of Institutional Ownership Tell Us About Zhong Hua International 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. It is also possible that fund managers don’t own the stock because they aren’t convinced it will perform well. Zhong Hua International 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:1064 Income Statement, March 23rd 2020
SEHK:1064 Income Statement, March 23rd 2020

Hedge funds don’t have many shares in Zhong Hua International Holdings. The company’s largest shareholder is Xiaoxiang Xie, with ownership of 17%, The second and third largest shareholders are Pak Hung Ho and Po Leung, holding 14% and 5.1%, respectively.

On studying our ownership data, we found that 6 of the top shareholders collectively own less than 50% of the share register, implying that no single individual has a majority interest.

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. As far I can tell there isn’t analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of Zhong Hua International Holdings

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

It seems insiders own a significant proportion of Zhong Hua International Holdings Limited. Insiders have a HK$42m stake in this HK$109m business. I would say this shows alignment with shareholders, but it is worth noting that the company is still quite small; some insiders may have founded the business. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public — mostly retail investors — own 59% of Zhong Hua International Holdings. With this size of ownership, retail investors can collectively play a role in decisions that affect shareholder returns, such as dividend policies and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

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. Be aware that Zhong Hua International Holdings is showing 5 warning signs in our investment analysis , and 1 of those is a bit concerning…

Of course this may not be the best stock to buy. So take a peek at this free free list of interesting companies.

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.

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