In this analysis, my focus will be on developing a perspective on Playmates Holdings Limited’s (HKG:635) 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. Since the same amount of capital coming from an activist institution and a passive mutual fund has different implications on corporate governance, it is a useful exercise to deconstruct 635’s shareholder registry.

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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 6.90% puts 635 on a list of companies that are not likely exposed to spikes in volatility resulting from institutional trading.

Insider Ownership

An 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. 635 insiders hold a significant stake of 60.95% in the company. This level of insider ownership has been found to have a negative impact on companies with consistently low PE ratios (underperformers), while it has been positive in the case of high PE ratio firms (outperformers). It’s also interesting to learn what 635 insiders have been doing with their shareholdings lately. 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 32.15% in 635 is held by the general public. With this size of ownership, retail investors can collectively play a role in major company policies that affect shareholders returns, including executive remuneration and the appointment of directors. They can also exercise the power to decline an acquisition or merger that may not improve profitability.

Next Steps:

Institutional ownership level and composition in 635 is not high nor active enough to significantly impact its investment thesis. However, ownership structure should not be the only focus of your research when constructing an investment thesis around 635. Instead, you should be evaluating company-specific factors such as Playmates Holdings’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following: