Public companies account for 57% of China Literature Limited's (HKG:772) ownership, while individual investors account for 27%

By
Simply Wall St
Published
May 11, 2022
SEHK:772
Source: Shutterstock

To get a sense of who is truly in control of China Literature Limited (HKG:772), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are public companies with 57% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Meanwhile, individual investors make up 27% of the company’s shareholders.

In the chart below, we zoom in on the different ownership groups of China Literature.

See our latest analysis for China Literature

ownership-breakdown
SEHK:772 Ownership Breakdown May 11th 2022

What Does The Institutional Ownership Tell Us About China Literature?

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 Literature. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see China Literature's historic earnings and revenue below, but keep in mind there's always more to the story.

earnings-and-revenue-growth
SEHK:772 Earnings and Revenue Growth May 11th 2022

China Literature is not owned by hedge funds. Our data shows that Tencent Holdings Limited is the largest shareholder with 57% of shares outstanding. This essentially means that they have extensive influence, if not outright control, over the future of the corporation. With 3.4% and 2.9% of the shares outstanding respectively, Huayi Cao and JPMorgan Chase & Co, Brokerage and Securities Investments are the second and third largest shareholders.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of China Literature

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. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

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.

We can report that insiders do own shares in China Literature Limited. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around HK$1.2b worth of shares (at current prices). It is good to see this level of investment by insiders. You can check here to see if those insiders have been buying recently.

General Public Ownership

The general public-- including retail investors -- own 27% stake in the company, and hence can't easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Public Company Ownership

Public companies currently own 57% of China Literature stock. It's hard to say for sure but this suggests they have entwined business interests. This might be a strategic stake, so it's worth watching this space for changes in ownership.

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 China Literature is showing 2 warning signs in our investment analysis , you should know about...

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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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