Breaking Down China Best Group Holding Limited’s (HKG:370) Ownership Structure

In this analysis, my focus will be on developing a perspective on China Best Group Holding Limited’s (SEHK:370) latest ownership structure, a less discussed, but important factor. The impact of a company’s ownership structure affects both its short- and long-term performance. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Therefore, it is beneficial for us to examine 370’s ownership structure in more detail.

Check out our latest analysis for China Best Group Holding
SEHK:370 Ownership_summary Feb 24th 18
SEHK:370 Ownership_summary Feb 24th 18

Institutional Ownership

Institutional investors are one of the largest group of market participants and their buy-sell decisions on a company’s stock can significantly impact prices, more so, when there are relatively small amounts of shares available on the market to trade. With an institutional ownership of 5.04%, 370 doesn’t seem too exposed to higher volatility resulting from institutional trading. Less covered stocks like 370 used to feature in legendary investor Peter Lynch’s portfolio, which would later be bought up by fast-following institutions as the stock gained more popularity.

Insider Ownership

Another important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. A major group of owners of 370 is individual insiders, sitting with a hefty 22.02% stake in the company. Broadly, insider ownership of this level has been found to negatively affect companies with consistently low PE ratio (underperforming). And a positive impact has been seen on companies with a high PE ratio (outperforming). It’s also interesting to learn what 370 insiders have been doing with their shareholdings lately. Insiders buying company shares can be a positive indicator of future performance, but a selling decision can simply be driven by personal financial needs.
SEHK:370 Insider_trading Feb 24th 18
SEHK:370 Insider_trading Feb 24th 18

General Public Ownership

A substantial ownership of 60.55% in 370 is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Private Company Ownership

Another important group of owners for potential investors in 370 are private companies that hold a stake of 12.39% in 370. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. With this size of ownership in 370, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.

Next Steps:

Institutional ownership level and composition in 370 is not high nor active enough to significantly impact its investment thesis. However, ownership structure should not be the only determining factor when you’re building an investment thesis for 370. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of China Best Group Holding’s share price. I urge you to complete your research by taking a look at the following:

  • 1. Financial Health: Is 370’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  • 2. Past Track Record: Has 370 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 370’s historicals for more clarity.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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.