In this analysis, my focus will be on developing a perspective on China Starch Holdings Limited’s (SEHK:3838) latest ownership structure, a less discussed, but important factor. Ownership structure of a company has been found to affect share performance over time. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, which is why we’ll take a moment to analyse 3838’s shareholder registry. All data provided is as of the most recent financial year end.
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Institutional Ownership
Due to the big order sizes of institutional investors, a company’s shares can experience large, one-sided momentum, driven by high volume of shares removed from, or injected into, the market. A low institutional ownership of 2.61% puts 3838 on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Low coverage stocks like 3838 tend to be favourite picks of legendary investor Peter Lynch, who used to cash in on the rally supported by institutional buying as the stock gained 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. Although individuals in 3838 hold only a 2.45% stake, it’s a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. It would also be interesting to check what insiders have been doing with their shareholding recently. Insider buying can be a positive indicator of future performance, but a selling decision can be simply driven by personal financial requirements.
General Public Ownership
A substantial ownership of 33.14% in 3838 is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
Private Company Ownership
Potential investors in 3838 should also look at another important group of investors: private companies, with a stake of 61.80%, who are primarily invested because of strategic and capital gain interests. An ownership of this size indicates a strong financial backing and has the potential to influence 3838’s business strategy. Thus, investors should dig deeper into 3838’s business relations with these companies and how it can affect shareholder returns in the long-term.