China National Chemical Engineering Co., Ltd's (SHSE:601117) market cap dropped CN¥3.9b last week; Individual investors bore the brunt

Key Insights

• China National Chemical Engineering's significant individual investors ownership suggests that the key decisions are influenced by shareholders from the larger public
• A total of 8 investors have a majority stake in the company with 50% ownership
• Institutions own 14% of China National Chemical Engineering

To get a sense of who is truly in control of China National Chemical Engineering Co., Ltd (SHSE:601117), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 43% to be precise, is individual investors. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As a result, individual investors as a group endured the highest losses last week after market cap fell by CN¥3.9b.

In the chart below, we zoom in on the different ownership groups of China National Chemical Engineering.

View our latest analysis for China National Chemical Engineering

What Does The Institutional Ownership Tell Us About China National Chemical Engineering?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

As you can see, institutional investors have a fair amount of stake in China National Chemical Engineering. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at China National Chemical Engineering's earnings history below. Of course, the future is what really matters.

We note that hedge funds don't have a meaningful investment in China National Chemical Engineering. The company's largest shareholder is China National Chemical Engineering Group Corporation Ltd., with ownership of 40%. The second and third largest shareholders are National Chemistry Investment Group Corporation Ltd. and Beijing Taiyou Investment Management Co., Ltd., with an equal amount of shares to their name at 2.7%.

We did some more digging and found that 8 of the top shareholders account for roughly 50% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of China National Chemical Engineering

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 less than 1% of China National Chemical Engineering Co., Ltd. However, it's possible that insiders might have an indirect interest through a more complex structure. Keep in mind that it's a big company, and the insiders own CN¥3.9m worth of shares. The absolute value might be more important than the proportional share. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 43% stake in China National Chemical Engineering. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

We can see that Private Companies own 43%, of the shares on issue. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with China National Chemical Engineering , and understanding them should be part of your investment process.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.