Hua Hong Semiconductor Limited's (HKG:1347) market cap surged HK$7.9b last week, private equity firms who have a lot riding on the company were rewarded

Key Insights

• Significant control over Hua Hong Semiconductor by private equity firms implies that the general public has more power to influence management and governance-related decisions
• 51% of the business is held by the top 6 shareholders
• Institutional ownership in Hua Hong Semiconductor is 17%

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If you want to know who really controls Hua Hong Semiconductor Limited (HKG:1347), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 38% to be precise, is private equity firms. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

As a result, private equity firms were the biggest beneficiaries of last week’s 12% gain.

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.

We can see that Hua Hong Semiconductor does have institutional investors; and they hold a good portion of the company's stock. 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 Hua Hong Semiconductor's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in Hua Hong Semiconductor. Looking at our data, we can see that the largest shareholder is Shanghai Hua Hong International Inc. with 20% of shares outstanding. With 11% and 9.3% of the shares outstanding respectively, Shanghai Alliance Investment Ltd. and Sino-Alliance International Limited are the second and third largest shareholders.

On further inspection, we found that more than half the company's shares are owned by the top 6 shareholders, suggesting that the interests of the larger shareholders are balanced out to an extent by the smaller ones.

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 plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Hua Hong Semiconductor

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.

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. But they may have an indirect interest through a corporate structure that we haven't picked up on. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own HK$7.0m worth of shares. 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-- including retail investors -- own 33% 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.

Private Equity Ownership

With an ownership of 38%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. 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

It seems that Private Companies own 11%, of the Hua Hong Semiconductor stock. 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:

It's always worth thinking about the different groups who own shares in a company. But to understand Hua Hong Semiconductor better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Hua Hong Semiconductor (of which 1 is concerning!) you should know about.

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.