Key Insights

• The considerable ownership by private equity firms in Hua Hong Semiconductor indicates that they collectively have a greater say in management and business strategy
• The top 4 shareholders own 52% of the company
• 18% of Hua Hong Semiconductor is held by Institutions

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 42% ownership. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Clearly, private equity firms benefitted the most after the company's market cap rose by HK$1.3b last week.

Let's take a closer look to see what the different types of shareholders can tell us about Hua Hong Semiconductor.

What Does The Institutional Ownership Tell Us About Hua Hong Semiconductor?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Hua Hong Semiconductor does have institutional investors; and they hold a good portion of the company's stock. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Hua Hong Semiconductor's earnings history below. Of course, the future is what really matters.

We note that hedge funds don't have a meaningful investment in Hua Hong Semiconductor. Shanghai Hua Hong International Inc. is currently the company's largest shareholder with 20% of shares outstanding. The second and third largest shareholders are Huaxin Investment Management Co., Ltd. and Shanghai Alliance Investment Ltd., with an equal amount of shares to their name at 11%.

Our research also brought to light the fact that roughly 52% of the company is controlled by the top 4 shareholders suggesting that these owners wield significant influence on the business.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Hua Hong Semiconductor

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our information suggests that Hua Hong Semiconductor Limited insiders own under 1% of the company. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around HK$1.5m worth of shares (at current prices). It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public, who are usually individual investors, hold a 28% stake in Hua Hong Semiconductor. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Equity Ownership

Private equity firms hold a 42% stake in Hua Hong Semiconductor. This suggests they can be influential in key policy decisions. 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.

Private Company Ownership

Our data indicates that Private Companies hold 11%, of the company's shares. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Hua Hong Semiconductor (of which 1 is a bit concerning!) you should know about.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.