The Insider
by

Fresh insider buying by ‘star’ performers offers clues to potential winning trades

Noteable insider buying activity at Johnson Electric Holdings, Luks Group, and Fufeng Group. Noteable selling activity in Kingboard Chemical and China ITS Holdings.

PUBLISHED : Sunday, 29 May, 2016, 3:16pm
UPDATED : Sunday, 29 May, 2016, 3:16pm

Director buying and selling activity rose in the fourth week of May with 38 companies that recorded 257 purchases worth HK$290 million versus 10 firms with 50 disposals worth HK$83 million, based on filings on Hong Kong exchange filings in the fourth week of May. The number of companies on the buying side was down from the previous week’s 41 companies but the number of trades and value were sharply up from the previous week’s 193 acquisitions worth HK$155 million. On the selling side, the number of companies was unchanged but the number of trades and value were up from the previous week’s 37 disposals worth HK$67 million.

While the buying by directors rose last week, the buyback activity fell with 22 companies that posted 103 repurchases worth HK$211 million. The figures were down from the previous week’s 24 firms, 123 trades and HK$254 million.

Directors are akin to baseball players as every insider has a “batting average” and based on those statistics investors can ignore or follow the directors’ moves. While past performance is not a guarantee of future results, directors with a proven track record provides a higher probability that a stock will go up or down following their transactions. Five stocks with proven insider track records with purchases and sales last week are Johnson Electric Holdings, Luks Group, Fufeng Group, Kingboard Chemical and China ITS Holdings.

Honorary Chairman Wang Koo Yik Chun resumed buying shares of electronic components manufacturer Johnson Electric Holdings at a lower price with 321,000 shares purchased from May 19 to 20 at HK$20.43 each. The trades increased her holdings to 550.946 million shares or 62.68 per cent of the issued capital. She previously acquired 51,000 shares on March 1 at HK$22.70 each. Prior to her purchases this year, Wang acquired 100,000 shares in December 2014 at HK$29.59 each, 20.7 million shares from August to December 2011 at an average of HK$3.96 each and 46.4 million shares from January 2005 to October 2010 at HK$7.30 to HK$1.41 each, or an average of HK$4.04 each. Investors should note that the stock rose by an average of 10 per cent three months after the chairman bought shares based on 145 purchases since 1998. The stock recorded a price gain three months after on 73 per cent of those acquisitions. The stock closed at HK$19.26 on Friday.

Director Victoria Cheng Kai On Kai Siian recorded her first trades in cement manufacturer and property investor Luks Group since December 2014 with 10,000 shares purchased from May 24 to 25 at HK$2.60 each. The trades increased her holdings to 57.707 million shares or 11.42 per cent of the issued capital. The purchases were made on the back of the 11 per cent drop in the share price since October 2015 from HK$2.93. Despite the fall in the share price, the counter is still up since March 2015 from HK$2.13. She previously acquired 9.8 million shares from November to December 2014 at HK$2.25 each, 148,000 shares in October 2008 at HK$1.71 each and 5.8 million shares in November 2005 at HK$1.10 each. Investors should note that the stock rose by an average of 11 per cent six months after the director bought shares based on 18 purchases since 2005. The stock recorded a price gain six months after on 83 per cent of those acquisitions. The stock closed at HK$2.60 on Friday.

Chairman & Founder Li Xue Chun recorded his first trades in food additive and biochemical products manufacturer Fufeng Group since 2011 with 2.8 million shares purchased from May 17 to 23 at an average of HK$2.18 each. The trades, which accounted for 30 per cent of the stock’s trading volume, increased his holdings to 966.143 million shares or 45.43 per cent of the issued capital. The purchases were made on the back of the 64 per cent drop in the share price since May 2015 from HK$6.24. He previously acquired 16.8 million shares from July 2010 to October 2011 at HK$5.20 to HK$2.95 each or an average of HK$4.10 each. The recent purchases bode well for shareholders as the stock rose by an average of 11 per cent three months after the chairman bought shares based on 49 purchases since 2010. The stock recorded a price gain three months after on 69 per cent of those acquisitions. The stock closed at HK$2.20 on Friday.

Chairman Cheung Kwok Wing sold shares of laminates and copper foil manufacturer Kingboard Chemical Holdings at higher than his acquisition prices in 2015 with 843,000 shares sold from May 20 to 24 at HK$15.75 each. The trades, which accounted for 11 per cent of the stock’s trading volume, reduced his holdings to 12.965 million shares or 1.26 per cent of the issued capital. The disposals were made on the back of the 47 per cent rise in the share price since February from HK$10.68. He previously acquired 911,000 shares in December 2015 at HK$11.45 each and 1.44 million shares from May to July 2015 at HK$14.20 to HK$10.89 each or an average of HK$12.53 each. Prior to those purchases, the Chairman sold 1.05 million shares from June to July 2014 at HK$16.14 each and bought 100,000 shares in January 2014 at HK$19.29 each. The stock tends to fall whenever the Chairman unloads shares with the counter posting an average drop of 15 per cent six months following his disposals. The stock recorded a price drop six months after on 75 per cent of those disposals. The stock closed at HK$15.98 on Friday.

CEO Jiang Hai Lin resumed selling shares of transportation management systems developer China ITS Holdings at higher than his sale price earlier this month with 580,000 shares sold from May 20 to 23 at 66.5 HK cents each. The trades reduced his holdings to 712.247 million shares or 43.06 per cent of the issued capital. He previously sold 200,000 shares on May 6 at 53 HK cents each. Prior to his sales this month, the CEO sold 3.54 million shares from April to May 2015 at HK$1.30 each and 3.3 million shares from July to September 2014 at HK$1.50 each. Prior to those disposals, Mr. Jiang acquired 6.5 million shares from May to June 2014 at HK$1.48 each and 858,000 shares in November 2013 at HK$1.85 each. Investors should note that the stock fell by an average of 9 per cent three months after the CEO sold shares based on 37 disposals since 2013. The stock recorded a price drop three months after on 65 per cent of those disposals. The counter closed at HK$0.74 on Friday.

Robert Halili is managing director of Asia Insider