THE INSIDER
The Insider
by

Hong Kong directors’ first time buys seen as a sign of undervalued stock

PUBLISHED : Sunday, 30 October, 2016, 5:50pm
UPDATED : Sunday, 30 October, 2016, 8:46pm

The buying plunged while the selling among directors was low for the first time in the past four weeks based on filings on the Hong Kong exchange in the fourth week of October.

A total of 22 companies recorded 104 purchases worth HK$103 million versus 13 firms with 68 disposals worth HK$124 million. The buy figures were sharply down from the previous week’s 4-day totals of 30 companies, 146 purchases and HK$424 million.

On the selling side, the number of firms was unchanged while the number of disposals was sharply up from the previous week’s 44 transactions. The sell value, however, was sharply down from the previous week’s disposals worth HK$300 million.

Meanwhile, the buyback activity rebounded with 19 companies that posted 110 repurchases worth HK$1.415 billion. The number of firms and trades were up from the previous week’s 16 companies and 66 transactions. The turnover, on the other hand, was consistent with the previous week’s repurchases worth HK$1.321 billion.

The bulk of the significant trades last week were purchases with first-time buys in Golden Throat Holdings, Tianneng Power International and SMI Holdings. First-time acquisitions are normally a sign that a stock is undervalued, especially when a purchase is made following steep fall in the share price. Golden Throat Holdings bought back for the first time since listing in July 2015 after the stock lost half its market value in the second half of this year. Not all first-time buys are made following a price fall, however, as there were initial purchases by executive directors of Tianneng Power and SMI Holdings following the sharp rebound in their share prices.

Meanwhile, tracking directors and companies in the Hong Kong market is like tracking baseball players in the MLB as each insider or firm have historical “batting” statistics that may determine how well a stock performs following their transactions. Four stocks that have risen following buybacks and director purchases are IGG Inc, PW Meditech Group, Century Ginwa Retail Holdings and AIA Group. These four stocks, particularly AIA Group, are worth watching based on their performance in three to six months following acquisitions.

Golden Throat Holdings Group Company Limited (6896)

Mainland lozenges producer Golden Throat Holdings bought back for the first time since listing in July 2015 with 2.08 million shares purchased from October 20 to 27 at HK$4.38 to HK$4.02 each or an average of HK$4.18 each. The trades, which accounted for 11 per cent of the stock’s trading volume, were made on the back of the 50 per cent drop in the share price since July from HK$8.29.

The Group’s buyback price was lower than the IPO price of HK$4.60. Investors should note that executive director Zeng Yong acquired 4.5 million shares on September 20 at HK$5.16 each, which increased his holdings to 516.014 million shares or 68.87 per cent of the issued capital. He previously acquired 4.05 million shares from June 23 to July 15 at HK$7.16 to HK$8.10 each or an average of HK$7.38 each. The purchases by Zeng since June are his first on-market trades since listing. The purchases by Zeng indicate that the stock has upside potential value of up to HK$8.10. The stock closed at HK$4.02 on Friday.

Tianneng Power International Limited (819)

Vice president Zhou Jian Zhong recorded his first on-market trade in motive battery products manufacturer Tianneng Power International since his appointment in March 2015 with 2.05 million shares purchased on October 19 at HK$6.90 each (Zhou was appointed as vice president in March 2015 but joined the group in 1996). The trade increased his holdings by 655 per cent to 2.363 million shares or 0.2 per cent of the issued capital. The acquisition was made on the back of the 44 per cent rebound in the share price since June from HK$4.80. The counter is also up since January 2015 from HK$1.78. Investors should note that there were buybacks by the company this year with 1.97 million shares purchased from June 13 to 14 at HK$5.28 to HK$4.68 each or an average of HK$4.98 each.

The group previously acquired 13.3 million shares from April 29 to May 19 at an average of HK$6.17 each. Prior to the repurchases since April, the company acquired 4.5 million shares in July 2015 at HK$2.45 to HK$3.80 each or an average of HK$2.95 each. The repurchases since 2015 are the company’s first buybacks since listing in June 2007. The stock closed at HK$7.08 on Friday.

SMI Holdings Group Limited (198)

Executive director Yang Rongbing recorded his first on-market buy in movie, television, and documentary producer and distributor SMI Holdings since his appointment in May 2013 with 92,000 shares purchased on October 19 at HK$0.73 each. The trade increased his holdings to 15.092 million shares or 0.11 per cent of the issued capital. The purchase was made on the back of the 14 per cent rebound in the share price since May from HK$0.64. Despite the rebound in the share price, the counter is still down since February from HK$0.82. He previously sold 1.08 million shares on January 29 at HK$0.79 each. The fact that Yang turned from a seller in January to a buyer this month indicates strongly that the stock is undervalued at HK$0.73.

Another sign that the stock is undervalued at Yang’s purchase price are buybacks by the company this year. The Group repurchased 5 million shares on September 2 at HK$0.68 each. The company previously acquired 10 million shares from July 8 to 14 and 66 million shares from May 3 to June 30 at an average of HK$0.71 each. Prior to the buybacks this year, the group acquired 44.1 million shares in July 2015 at an average of HK$0.73 each and 41.9 million shares from March to June 2000 at HK$1.62 to HK$0.63 each or an average of HK$1.12 each. The counter closed at HK$0.74 on Friday.

IGG Inc (799)

Online games developer and operator IGG resumed buying back at higher prices with 3.25 million shares purchased from October 24 to 28 at HK$5.41 to HK$5.67 each or an average of HK$5.53 each. The trades were made on the back of the 31 per cent rise in the share price since September from HK$4.21. The group previously acquired 27.5 million shares from May 10 to August 29 at HK$3.23 to HK$3.92 each or an average of HK$3.44 each and 21.6 million shares from December 2015 to January this year at HK$3.13 to HK$3.61 each or an average of HK$3.44 each. The repurchases since December 2015 are the group’s first buybacks since the company moved its listing from GEM to the main board in March 2015. The fact that the group has put together two buyback sprees where the share price appreciated by 15 per cent to 21 per cent may point to more gains in the share price from the company’s repurchases this quarter.

Aside from the company, there were also purchases by senior vice president and CTO Zhang Hong this year. Zhang acquired 679,000 shares from July 13 to 14 at HK$3.39 each, which boosted his stake to 436.431 million shares or 32.13 per cent of the issued capital. Those are his first on-market trades since his appointment in August 2015. The stock closed at HK$5.64 on Friday.

PW Medtech Group Limited (1358)

Mainland medical device developer and manufacturer PW Medtech Group resumed buying back at higher than its acquisition prices earlier this year with 218,000 shares purchased from October 26 to 28 at HK$2.40 each. The trades accounted for 13 per cent of the stock’s trading volume. The group previously acquired 50.6 million shares from March 30 to September 28 at HK$1.66 to HK$2.30 each or an average of HK$2.00 each and 42.4 million shares from January 13 to April 28 at HK$1.53 to HK$2.06 each or an average of HK$1.70 each. Prior to the buybacks this year, the company acquired 104,000 shares in December 2015 at HK$1.52 each and 17.2 million shares from January to September 2015 at HK$3.25 to HK$1.38 each or an average of HK$2.04 each. The repurchases since January 2015 are the company’s first buybacks since listing in November 2013. The group’s last buyback price was lower than the IPO price of HK$3.18. The recent buybacks bodes well for shareholders as the stock rose by an average of 15 per cent three months after the group bought shares based on 48 filings since 2015. The stock recorded a price gain three months after on 94 per cent of those filings.

The sentiment is not entirely positive this year as there were sales by chairman Lin Jun Shan with 972,000 shares sold from September 9 to 19 at an average of HK$2.30 each, which reduced his holdings by 15 per cent to 4.763 million shares or 0.29 per cent of the issued capital. He previously acquired 145,000 shares in December 2014 at an average of HK$3.27 each. The stock closed at HK$2.40 on Friday.

Century Ginwa Retail Holdings Limited (162)

Executive director Sha Ying Jie recorded his first on-market trades in department stores and shopping malls operator Century Ginwa Retail Holdings since April 2015 with 446,000 shares purchased from October 20 to 24 at an average of HK$0.49 each. The trades, which accounted for 11 per cent of the stock’s trading volume, increased his holdings by 8 per cent to 5.927 million shares or 0.52 per cent of the issued capital. The purchases were made on the back of the 75 per cent rebound in the share price since August from HK$0.28. Despite the rebound in the share price, the counter is still down since August 2015 from HK$1.47. He previously acquired 16,000 shares in April 2015 at HK$1.20 each, 684,000 shares from November 2011 to June 2012 at HK$0.37 to HK$0.42 each or an average of HK$0.397 each and 1.26 million shares from August 2009 to November 2010 at HK$0.21 to HK$0.47 each or an average of HK$0.304 each. Sha was appointed to the board in July 2007. Investors should note that the stock rose by an average of 22 per cent three months after Sha bought shares based on 9 purchases since 2009. The stock recorded a price gain three months after on 89 per cent of those acquisitions. The stock closed at HK$0.59 on Friday.

AIA Group Limited (1299)

CEO Mark Edward Tucker resumed buying shares of insurance and financial services provider AIA Group at higher than his acquisition prices earlier this year with 200 shares purchased on October 17 at HK$51.78 each. The trade increased his holdings to 25.512 million shares or 0.21 per cent of the issued capital. He previously acquired 200 shares on September 15 at HK$50.63 each, 900 shares from May 16 to August 15 at HK$43.38 to HK$49.65 each or an average of HK$47.33 each and 900 shares from January 15 to April 15 at HK$38.00 to HK$45.94 each or an average of HK$43.33 each. Prior to his trades this year, Tucker acquired 2,500 shares from January to December 2015 at HK$53.68 to HK$43.15 each or an average of HK$48.60 each and 464,000 shares from October 2010 to December 2014 at HK$22.36 to HK$45.44 each or an average of HK$23.28 each. Tucker joined the company in July 2010. Tucker is one of the most predictable and dependable directors to follow in the Hong Kong market as he has recorded a purchase in the middle of the month in each month since October 2011. That is 61 consecutive mid-month purchases by Tucker in AIA in the past six years. Not only that, his consistent buying programme has resulted in an average gain of 7 per cent six months following his acquisitions with the shares of AIA recording a price gain six months after on 79 per cent of those acquisitions. The stock closed at HK$51.40 on Friday.

Robert Halili is managing director of Asia Insider