Private equity firms among Hua Hong Semiconductor Limited’s (HKG:1347) largest stockholders and were hit after last week’s 4.1% price drop

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
• A total of 9 investors have a majority stake in the company with 50% ownership
• Institutional ownership in Hua Hong Semiconductor is 17%

Every investor in Hua Hong Semiconductor Limited (HKG:1347) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are private equity firms with 43% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, private equity firms as a group endured the highest losses last week after market cap fell by HK$1.2b.

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?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Hua Hong Semiconductor does have institutional investors; and they hold a good portion of the company’s stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Hua Hong Semiconductor, (below). Of course, keep in mind that there are other factors to consider, too.

We note that hedge funds don’t have a meaningful investment in Hua Hong Semiconductor. Our data shows that Shanghai Hua Hong International Inc. is the largest shareholder with 20% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 13% and 9.4%, of the shares outstanding, respectively.

We also observed that the top 9 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Hua Hong Semiconductor

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 information suggests that Hua Hong Semiconductor Limited insiders own under 1% of the company. But they may have an indirect interest through a corporate structure that we haven’t picked up on. Keep in mind that it’s a big company, and the insiders own HK$1.2m worth of shares. The absolute value might be more important than the proportional share. 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, who are usually individual investors, hold a 39% stake in Hua Hong Semiconductor. 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 43%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Case in point: We’ve spotted 2 warning signs for Hua Hong Semiconductor you should be aware of.

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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.