The Kangda International Environmental Company Limited (HKG:6136) Ownership Structure Could Be Important

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Thomas Auclair

Updated Mon, Aug 27, 2018, 7:54 PM

In this analysis, my focus will be on developing a perspective on Kangda International Environmental Company Limited’s (HKG:6136) latest ownership structure, a less discussed, but important factor. A company’s ownership structure is often linked to its share performance in both the long- and short-term. Differences in ownership structure of companies can have a profound effect on how management’s incentives are aligned with shareholder returns, and whether they adhere to corporate governance best practices. Although this is an important factor for long-term investors, many investors can also be impacted by institutional presence and their high-volume trading. Therefore, it is beneficial for us to examine 6136’s ownership structure in more detail.

View our latest analysis for Kangda International Environmental

SEHK:6136 Ownership Summary August 28th 18

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 2.0% puts 6136 on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading. Apart from low institutional ownership, another indicator of 6136’s low popularity is the fact that the company is only covered by 1 analyst.

Insider Ownership

I find insiders are an important group of stakeholders, who are directly involved in making key decisions related to the use of capital. In essence, insider ownership is more about the alignment of shareholders’ interests with the management. A major group of owners of 6136 is individual insiders, sitting with a hefty 56.4% 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). Another aspect of insider ownership is to learn about their recent transactions. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.

General Public Ownership

A substantial ownership of 24.7% in 6136 is held by the general public. 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 Equity Ownership

With a stake of 16.9%, private equity firms form another important class of owners in 6136. With a stake of 16.9%, they can influence 6136’s key policy decisions. This is a positive sign for potential investors as these firms play an important role in aligning company policy with shareholder returns.

Next Steps:

Institutional ownership in 6136 is not at a level that would concern investors. We are less likely to see sustained downtrends or significant volatility resulting from large institutional trading. However, ownership structure should not be the only determining factor when you’re building an investment thesis for 6136. Rather, you should be examining fundamental factors such as the intrinsic valuation, which is a key driver of Kangda International Environmental’s share price. I highly recommend you to complete your research by taking a look at the following:

Future Outlook: What are well-informed industry analysts predicting for 6136’s future growth? Take a look at our free research report of analyst consensus for 6136’s outlook.
Past Track Record: Has 6136 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 6136’s historicals for more clarity.
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.

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.

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