Institutional investors may take tough action after China Mengniu Dairy Company Limited’s (HKG:2319) latest 14% drop added to year-long losses

Each investor of China Mengniu Dairy Company Limited (CHF:2319) should know the most powerful shareholder groups. And the group that holds the biggest slice of the pie are institutions with 47% ownership. In other words, the group is likely to gain the most (or lose the most) from its investment in the business.

As a result, institutional investors suffered the highest losses last week after the market capitalization plummeted by HK$16 billion. Needless to say, the recent loss on top of shareholders’ year-on-year loss of 49% might not go over well, especially with this category of shareholders. Often referred to as “market makers,” institutions wield significant power in influencing the price dynamics of any stock. Therefore, if the decline continues, institutional investors may be forced to sell China Mengniu Dairy, which could hurt individual investors.

Let’s dive deeper into each type of China Mengniu Dairy owner, starting with the table below.

Our analysis indicates that 2319 is potentially undervalued!

SEHK: 2319 Ownership Breakdown October 30, 2022

What does institutional ownership tell us about China Mengniu Dairy?

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.

As you can see, institutional investors hold a sizeable share of China Mengniu Dairy. This suggests some credibility with professional investors. But we cannot rely solely on this fact since institutions sometimes make bad investments, like everyone else. When multiple institutions hold a stock, there is always a risk that they are in a “crowded trade”. When such a transaction goes wrong, multiple parties may compete to quickly sell shares. This risk is higher in a company with no history of growth. You can see China Mengniu Dairy’s historical revenue and earnings below, but keep in mind there’s always more to tell.

earnings-and-revenue-growth
SEHK: 2319 Profit and Revenue Growth Oct 30, 2022

China Mengniu Dairy is not owned by hedge funds. The company’s largest shareholder is COFCO Corporation, with a 23% stake. With 8.0% and 6.0% of the shares outstanding, respectively, Fidelity International Ltd and BlackRock, Inc. are the second and third largest shareholders.

We also observed that the top 7 shareholders represent more than half of the share register, with some small shareholders to balance the interests of the larger ones to some extent.

Institutional ownership research is a good way to assess and filter the expected performance of a stock. The same can be obtained by studying the feelings of the analyst. A number of analysts cover the stock, so you can look at growth forecasts quite easily.

Insider ownership of China Mengniu Dairy

The definition of an insider may differ slightly from country to country, but board members still matter. The management of the company runs the company, but the CEO will answer to the board of directors, even if he is a member of it.

Most view insider ownership as a positive because it can indicate that the board is well aligned with other shareholders. However, there are times when too much power is concentrated within this group.

Our data suggests that insiders hold less than 1% of China Mengniu Dairy Company Limited in their own name. We note, however, that insiders may have an indirect interest through a private company or other corporate structure. It’s a very big company, so it would be surprising to see insiders owning much of the company. Although their stake is less than 1%, we can see that the board members collectively own HK$13 million worth of shares (at current prices). In this kind of situation, it may be more interesting to see if these insiders have bought or sold.

General public property

With a 30% stake, the general public, consisting mainly of individual investors, has some influence over China Mengniu Dairy. Although this group may not necessarily make the decisions, they can certainly have a real influence on the way the business is run.

Private Company Ownership

It seems that private companies own 23% of the shares of China Mengniu Dairy. It might be worth exploring this further. If related parties, such as insiders, have an interest in any of these private companies, this should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next steps:

While it is worth considering the different groups that own a business, there are other, even more important factors. For example, we have identified 1 warning sign for China Mengniu Dairy of which you should be aware.

If you’re like me, you might want to ask yourself if this business will grow or shrink. Fortunately, you can check this free report showing analysts’ predictions for its future.

NB: The figures in this article are calculated using trailing twelve month data, which refers to the 12 month period ending on the last day of the month the financial statements are dated. This may not be consistent with the annual report figures for the full year.

Valuation is complex, but we help make it simple.

Find out if Mengniu Dairy Products in China is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.

See the free analysis

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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