Why Fairwood Holdings Limited’s (HKG:52) CEO Salary Matters To You
Chee Shing Chan is the CEO of Fairwood Holdings Limited (HKG:52), which has recently grown to a market capitalization of HK$3.79b. Understanding how CEOs are incentivised to run and grow their company is an important aspect of investing in a stock. Incentives can be in the form of compensation, which should always be structured in a way that promotes value-creation to shareholders. I will break down Chan’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.
View our latest analysis for Fairwood Holdings
Did Chan create value?
Performance can be measured based on factors such as earnings and total shareholder return (TSR). I believe earnings is a cleaner proxy, since many factors can impact share price, and therefore, TSR. Over the last year 52 released an earnings of HK$216.08m , which is an increase of 5.26% from its prior year’s earnings of HK$205.28m. This is a positive indication that 52 has strived to maintain a good track record of profitability in the face of any headwinds. Given earnings are moving the right way, CEO pay should mirror Chan’s hard work. In the same year, Chan’s total compensation increased by a mere 2.38% to HK$6.50m. In addition to this, Chan’s pay is also made up of 3.66% non-cash elements, which means that fluctuations in 52’s share price can move the true level of what the CEO actually takes home at the end of the day.
Is 52 overpaying the CEO?
Despite the fact that there is no cookie-cutter approach, as compensation should account for specific factors of the company and market, we can determine a high-level thresold to see if 52 deviates substantially from its peers. This exercise helps investors ask the right question about Chan’s incentive alignment. Typically, a SEHK small-cap is worth around HK$2.61B, creates earnings of HK$245M, and pays its CEO circa HK$3.3M annually. Based on the size of 52 in terms of market cap, as well as its performance, using earnings as a proxy, it seems that Chan is paid on a similar level to other SEHK CEOs of small-caps, on average. This may mean that 52 is appropriately compensating its CEO.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in 52, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about 52’s governance, look through our infographic report of the company’s board and management.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of 52? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.
