Hua Hong Semiconductor Limited's (HKG:1347) largest shareholders are private equity firms who were rewarded as market cap surged HK$3.5b last week

Key Insights

• The considerable ownership by private equity firms in Hua Hong Semiconductor indicates that they collectively have a greater say in management and business strategy
• 50% of the business is held by the top 4 shareholders
• Institutional ownership in Hua Hong Semiconductor is 18%

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To get a sense of who is truly in control of Hua Hong Semiconductor Limited (HKG:1347), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 41% to be precise, is private equity firms. 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, private equity firms collectively scored the highest last week as the company hit HK$70b market cap following a 5.8% gain in the stock.

Let's delve deeper into each type of owner of Hua Hong Semiconductor, beginning with the chart below.

See our latest analysis for Hua Hong Semiconductor

What Does The Institutional Ownership Tell Us About Hua Hong Semiconductor?

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.

As you can see, institutional investors have a fair amount of stake in Hua Hong Semiconductor. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Hua Hong Semiconductor's historic earnings and revenue below, but keep in mind there's always more to the story.

Hua Hong Semiconductor is not owned by hedge funds. Shanghai Hua Hong International Inc. is currently the company's largest shareholder with 20% of shares outstanding. With 11% and 9.7% of the shares outstanding respectively, Shanghai Alliance Investment Ltd. and Huaxin Investment Management Co., Ltd. are the second and third largest shareholders.

Our research also brought to light the fact that roughly 50% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Hua Hong Semiconductor

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

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own less than 1% of Hua Hong Semiconductor Limited. However, it's possible that insiders might have an indirect interest through a more complex structure. It is a very large company, so it would be surprising to see insiders own a large proportion of the company. Though their holding amounts to less than 1%, we can see that board members collectively own HK$5.7m worth of shares (at current prices). 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 30% stake in Hua Hong Semiconductor. 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 Equity Ownership

Private equity firms hold a 41% stake in Hua Hong Semiconductor. This suggests they can be influential in key policy decisions. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

Private Company Ownership

We can see that Private Companies own 11%, of the shares on issue. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the 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. For example, we've discovered 3 warning signs for Hua Hong Semiconductor (1 is potentially serious!) that you should be aware of before investing here.

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.