Director purchases surge while buy-back activity takes a dive

Key trades last week included repurchases in women’s footwear maker C.banner and Sihuan Pharmaceutical

Robert Halili

Published: 8:53pm, 23 Oct 2016

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Buying among directors surged while selling was high for a third week, based on filings to the Hong Kong exchange during the typhoon-shortened week of October 17 to 20. A total of 30 companies recorded 146 purchases worth HK$424 million, compared with 13 firms with 44 disposals worth HK$300 million.

The buy figures were sharply up from the previous week’s five-day totals of 23 companies, 101 purchases and HK$131 million. On the selling side, the number of firms was not far off from the previous week’s 16 companies while the sell value was sharply up from HK$123 million. The number of transactions, however, was down from 68 disposals.

Meanwhile, buy-back activity plunged, with 15 companies that posted 58 repurchases worth HK$979 million. The number of firms was consistent with the previous week’s 16 companies, but the number of trades and their value were sharply down from 93 transactions worth HK$1.86 billion.

There were several significant trades last week, with buy-backs in C.banner International Holdings and Sihuan Pharmaceutical Holdings Group, as well as insider purchases in Dawnrays Pharmaceutical Holdings and Honghua Group. On the negative side, investors should trade with caution in Huisheng International Holdings, Wuyi International Pharmaceutical and China Jicheng Holdings due to rare or first-time sales by theirchairmen.

Women’s footwear designer and manufacturer C.banner recorded its first buy-back since July last year with 2.16 million shares purchased on October 20 at HK$2.12 each. The trade was made on the back of the 38 per cent drop in the share price since April from HK$3.44. The counter is also down since January from HK$3.69. The group previously acquired 14.9 million shares in July last year at an average of HK$2.80 each. Investors should note that the stock rose 29 per cent following those buy-backs last year to HK$3.62 in January this year. The group’s latest buy-back prices were lower than the listing price of HK$3.24. The stock closed at HK$2.16 on Thursday.

We have a price trend alert on pharmaceutical products manufacturer and distributor Sihuan as the group bought back at progressively higher prices on heavy volume last week. The company repurchased 68.6 million shares from October 17 to 19 at an average of HK$1.78 each. The trades accounted for 45 per cent of the stock’s trading volume. The recent buy-backs are not unusual as the group acquired 289 million shares from July 4 to 22 at progressively higher prices from HK$1.48 to HK$1.91 each. Before these, the company acquired 58.63 million shares from June 23 to 24 at an average of HK$1.65 each and 12.5 million shares in July 2011 at an average of HK$3.38 each. The stock closed at HK$1.91 on Thursday.

Trade reversals are often good signals that a stock is undervalued, especially when a director resumes trading following a long lay-off. Non-executive director Leung Hong-man acquired shares of pharmaceutical play Dawnrays at lower than his sale prices in 2014 with 60,000 shares bought on October 14 at HK$5.02 each. The trade increased his holdings to 6.05 per cent of the issued capital. The acquisition was made on the back of the 12 per cent drop in the share price since September from HK$5.68. The counter is also down since April from HK$6.67.

Leung previously sold 1.53 million shares in October 2014 at an average of HK$7.70 each and 15 million shares from January to March 2014 at an average of HK$5.28 each. Those sales were made at a profit, based on the five million shares Leung acquired from March to April 2011 at an average of HK$3.08 each and 20 million shares from May 2006 to November 2008 through open and off-market trades at an average of 69 HK cents each.

Investors should note that there were buy-backs by the company and purchases by chairman Li Kei-ling, chief executive Chen Shaojun and executive director Hung Yung-lai earlier this year.

Dawnrays bought back 1.1 million shares from August 30 to September 1 at an average of HK$5.31 each. The group previously acquired 2.44 million shares from January 28 to February 15 at an average of HK$5.11 each. Before the buy-backs this year, the company acquired 3.85 million shares from January to February last year at an average of HK$5.10 each and 29.6 million shares from January 2006 to February 2009 at an average of 71 HK cents each.

Li, on the other hand, acquired 172,000 shares on August 31 at HK$5.43 each, which boosted her stake to 42.74 per cent. She previously acquired 328,000 shares on July 22 at HK$5.04 each. Before her purchases this year, Li acquired 400,000 shares in December 2014 at HK$5.19 each and 72,000 shares in July 2004 at 56 HK cents each. She was appointed to the board in October 2002.

Meanwhile, Chen bought 296,000 shares on August 30 at HK$5.27 each, which increased his holdings to 1.12 per cent. He previously acquired 200,000 shares on July 22 at HK$5.03 each. Chen’s purchases since July are his first on-market trades since his appointment in April.

Lastly, Hung acquired 196,000 shares on July 22 at HK$5.04 each, which boosted his stake to 36.67 per cent. He previously acquired 72,000 shares in July 2004 at 56 HK cents each. Hung was appointed to the board in October 2002.

The purchases by the four directors and buy-backs by the company this year indicate the stock is undervalued at up to HK$5.43 per share. The stock closed at HK$4.96 on Thursday.

There was also a trade reversal following a long lay-off in drilling rigs manufacturer Honghua. The trade was unusual, however, as chairman and chief executive Zhang Mi bought shares this month at higher than his sale price last year. Not only that, the acquisition was made following the sharp rebound in the share price this year.

Zhang Mi, chairman of Honghua Group, bought 130,000 shares, bringing his holdings to 48.25 per cent of issued capital. Photo: Bruce Yan

Zhang bought 130,000 shares on October 12 at 66 HK cents each, which increased his holdings to 48.25 per cent of the issued capital. The acquisition was made on the back of the 106 per cent rebound in the share price since June from 32 HK cents. Last year, he sold 500,000 shares in September at 58 HK cents each and acquired 5.02 million shares from August to September at an average of 53 HK cents each. He also sold eight million shares from April to June at HK$1 each and acquired 200,000 shares in January at 99 HK cents each. Before his transactions since last year, Zhang sold a net 15.4 million shares from May 2013 to November 2014 at an average of HK$2.97 each.

Another insider that made a trade reversal this month is independent non-executive director Guo Yanjun with 10.3 million shares bought from October 4 to 5 at an average of 63 HK cents each. The trades boosted his stake to 0.38 per cent. Those are his first on-market purchases since his appointment in June 2011. The deal, however, was made at sharply lower than his sale price, based on the 2.1 million shares he sold in April last year at HK$1.06 each.

The trade reversals by the pair this month have already paid off as the stock closed sharply higher from their last purchase prices at 84 HK cents on Thursday.

Chairman Ding Biyan recorded his first on-market sale in pork product supplier Huisheng since the stock was listed in February 2014 with the sale of his entire holdings of 172.44 million shares, or 29.78 per cent of the issued capital, on October 17 at 47 HK cents each. However, investors should note that the volume on that day was only 27.2 million shares with a price range of 50 to 60 HK cents, which were above Ding’s sale price. The sale was made on the back of the 33 per cent drop in the share price since September from 70 HK cents. Last year, Ding acquired 200,000 shares in November at 96 HK cents each and 850,000 shares in August at an average of HK$1.03 each. His transactions since August last year are also the first on-market trades by a director of the company since listing. Ding’s trade prices were lower than the listing prices of HK$1.45 to HK$2.05. The counter closed at 55 HK cents on Thursday.

Lin Ouwen, chairman and CEO of Wuyi International Pharmaceutical, sold his entire holdings of 447.2 million shares at 28.5 HK cents each. Photo: Edward Wong

Chairman and chief executive Lin Ouwen recorded his first on-market trade in Western pharmaceuticals and modern Chinese medicine manufacturer and distributor Wuyi since April 2010 with the sale of his entire holdings of 447.2 million shares, or 19.82 per cent of the issued capital, on October 17 at 28.5 HK cents each. However, investors should note that the price range on that day was 31.5 to 35.5 HK cents, higher than Lin’s sale price. The sale was made on the back of the 10 per cent rebound in the share price since September from 26 HK cents. Despite the rebound, the counter is still down since February 2014 from 66 HK cents.Lin previously sold 12 million shares in April 2010 atHK$1 each and bought 5.3 million shares in October 2007 at an average of HK$1.46 each.The counter closed at 34.5 HK cents on Thursday.

Chairman and chief executive Huang Wenji recorded the first on-market trade by a director in umbrella manufacturer and distributor Jicheng since the stock was listed in February last year with 47.74 million shares sold on October 17 at 21 HK cents each. The trade reduced his holdings to 74.94 per cent of the issued capital. The sale was made on the back of the 25 per cent drop in the share price since September from 28 HK cents. The counter is also down since September last year from 64 HK cents. Huang’s sale price was lower than the listing prices of HK$1.10 to HK$1.60. Huang was appointed to the board in June 2014. The counter closed at 22 HK cents on Thursday.

Robert Halili is managing director of Asia Insider

This article appeared in the South China Morning Post print edition as: Signs of undervaluation as Honghua directors boost stakes

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