Institutional owners may consider drastic measures as China Mengniu Dairy Company Limited's (HKG:2319) recent HK$9.3b drop adds to long-term losses

Key Insights

• Given the large stake in the stock by institutions, China Mengniu Dairy's stock price might be vulnerable to their trading decisions
• A total of 6 investors have a majority stake in the company with 52% ownership
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

If you want to know who really controls China Mengniu Dairy Company Limited (HKG:2319), then you'll have to look at the makeup of its share registry. And the group that holds the biggest piece of the pie are institutions with 49% ownership. 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, institutional investors endured the highest losses last week after market cap fell by HK$9.3b. This set of investors may especially be concerned about the current loss, which adds to a one-year loss of 31% for shareholders. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. Hence, if weakness in China Mengniu Dairy's share price continues, institutional investors may feel compelled to sell the stock, which might not be ideal for individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about China Mengniu Dairy.

See our latest analysis for China Mengniu Dairy

What Does The Institutional Ownership Tell Us About China Mengniu Dairy?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

We can see that China Mengniu Dairy does have institutional investors; and they hold a good portion of the company's stock. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of China Mengniu Dairy, (below). Of course, keep in mind that there are other factors to consider, too.

Hedge funds don't have many shares in China Mengniu Dairy. COFCO Corporation is currently the company's largest shareholder with 24% of shares outstanding. With 8.1% and 6.0% of the shares outstanding respectively, First Sentier Investors (Australia) IM Ltd and Fidelity International Ltd are the second and third largest shareholders.

We also observed that the top 6 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. 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 Mengniu Dairy

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

Our information suggests that China Mengniu Dairy Company Limited insiders own under 1% of the company. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own HK$95m of stock. 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 27% stake in China Mengniu Dairy. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Company Ownership

We can see that Private Companies own 24%, 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.

I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.

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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.