CapitaLand Retail China Trust’s (SGX:AU8U) Insiders Increased Their Holdings – Should You?

CRCT is the first China shopping mall Real Estate Investment Trust (REIT) in Singapore, with a portfolio of 11 income-producing shopping malls. CapitaLand Retail China Trust is one of Singapore’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in 46.00k shares during this period. A well-known argument is that insiders investing more in their own companies’ shares sends an optimistic signal. A research published in The MIT Press (1998) concluded that stocks following insider buying outperformed the market by 4.5%. But these signals may not be sufficient to gain confidence on whether to invest. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

See our latest analysis for CapitaLand Retail China Trust

Who Are The Insiders?

SGX:AU8U Insider Trading August 29th 18
SGX:AU8U Insider Trading August 29th 18

Over the past three months, more shares have been bought than sold by CapitaLand Retail China Trust’s’ insiders. In total, individual insiders own over 3.27 million shares in the business, which makes up around 0.34% of total shares outstanding.

The following insiders have recently increased their company holdings:
Name Management Board Total Annual Compensation
Cho Lim
Li Kuan

Is Future Growth Outlook As Bullish?

SGX:AU8U Future Profit August 29th 18
SGX:AU8U Future Profit August 29th 18

Analysts’ expectations for earnings over the next 3 years of -37.0% provides poor outlook for the company, however, this is contrary to the signal company insiders are sending with their net buying activity. Digging deeper into the line items, CapitaLand Retail China Trust is expected to experience a double-digit top-line growth over the next year, which has not dropped down into the expected bottom-line due to its large negative growth rate. This means cost growth is anticipated to outstrip revenues, indicating a period of investment and growth in the company. Insiders’ net buying activities seem to support the idea of growth moving forward. Or they may simply view the current share price as too low relative to its intrinsic value.

Did Stock Price Volatility Instigate Buying?

Another factor we should consider is whether the timing of these insider transactions coincide with any significant share price movements. A correlation could mean directors are trading on market inefficiencies based on their belief of the company’s intrinsic value. Within the past three months, CapitaLand Retail China Trust’s share price traded at a high of SGD1.61 and a low of SGD1.43. This indicates an immaterial change in share price, with a movement of 12.59%. Insiders’ purchases may not be driven by this movement but perhaps their view of the company’s growth in the future or simply their individual portfolio rebalancing.

Next Steps:

CapitaLand Retail China Trust’s insider meaningful buying activity tells us the shares are currently in favour, although the expected earnings growth challenges this conclusion, and the share price has not moved significantly to warrant reassessment of mispricing. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I’ve put together two essential factors you should further examine:

  1. Financial Health: Does CapitaLand Retail China Trust have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of CapitaLand Retail China Trust? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.