Is Dingyi Group Investment Limited (HKG:508) Excessively Paying Its CEO?
Leading Dingyi Group Investment Limited (SEHK:508) as the CEO, Xiaonong Su took the company to a valuation of HK$4.74B. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Su’s pay and compare this to the company’s performance over the same period, as well as measure it against other SEHK-listed CEOs leading companies of similar size and profitability. Check out our latest analysis for Dingyi Group Investment
What has 508 performance been like?
508 can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, 508 released negative earnings of -HK$613.0M , which is a further decline from prior year’s loss of -HK$151.8M. Moreover, on average, 508 has been loss-making in the past, with a 5-year average EPS of -HK$0.07. In the situation of unprofitability the company may be incurring a period of reinvestment and growth, or it can be a signal of some headwind. In any event, CEO compensation should mirror the current state of the business. In the most recent financial statments, Su’s total compensation fell by a minor -2.07%, to HK$474,000. Although I couldn’t find information on the composition of Su’s pay, if some portion were non-cash items such as stocks and options, then variabilities in 508’s share price can impact the real level of what the CEO actually takes home at the end of the day.
Is 508 overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, as remuneration should be tailored to the specific company and market, we can estimate a high-level thresold to see if 508 is an outlier. This exercise can help shareholders ask the right question about Su’s incentive alignment. Typically, a SEHK small-cap has a value of HK$2.61B, creates earnings of HK$245M, and remunerates its CEO circa HK$3.3M annually. Typically I would use earnings and market cap to account for variations in performance, however, 508’s negative earnings reduces the effectiveness of this method. Analyzing the range of remuneration for small-cap executives, it seems like Su is paid aptly compared to those in similar-sized companies. On the whole, although 508 is loss-making, it seems like the CEO’s pay is sound.
What this means for you:
Are you a shareholder? You can breathe easy knowing that shareholder funds aren’t being used to overpay 508’s CEO. However, on the flipside, you should ask whether Su is appropriately remunerated on the basis of retention. Its important for shareholders to be active in voting governance decisions, as board members are only representatives of investors’ voices. To find out more about 508’s governance, look through our infographic report of the company’s board and management.
Are you a potential investor? Whether Su is over or underpaid should not be a deciding factor whether or not you invest in 508. However, the way the company is governed and policies, such as remuneration, are structured, are important considerations for an investor. The best place to start is to understand how well 508 is placed financially. To research more about these fundamentals, I recommend you check out our simple infographic report on 508’s financial metrics.
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To help readers see pass 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.
