I am going to take a deep dive into Fuwei Films (Holdings) Co Ltd’s (NASDAQ:FFHL) most recent ownership structure, not a frequent subject of discussion among individual investors. The impact of a company’s ownership structure affects both its short- and long-term performance. Since the effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability of shareholders, investors should take a closer look at FFHL’s shareholder registry. All data provided is as of the most recent financial year end.
With an institutional ownership of 15.72%, FFHL can face volatile stock price movements if institutions execute block trades on the open market, more so, when there are relatively small amounts of shares available on the market to trade Although FFHL has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. In the case of FFHL, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into FFHL’s ownership structure and find out how other key ownership classes can affect its investment profile.
General Public Ownership
A substantial ownership of 31.36% in FFHL is held by the general public. This size of ownership gives retail investors collective power in deciding on major policy decisions such as executive compensation, appointment of directors and acquisitions of businesses. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
Private Company Ownership
Another important group of owners for potential investors in FFHL are private companies that hold a stake of 52.92% in FFHL. These are companies that are mainly invested due to their strategic interests or are incentivized by reaping capital gains on investments their shareholdings. With this size of ownership in FFHL, this ownership class can affect the company’s business strategy. As a result, potential investors should further explore the company’s business relations with these companies and find out if they can affect shareholder returns in the long-term.
What this means for you:
The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only focus of your research when constructing an investment thesis around FFHL. Rather, you should be looking at fundamental drivers such as Fuwei Films (Holdings)’s past track record and financial health. I highly recommend you to complete your research by taking a look at the following:
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.
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.