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3 Companies with Insider Activity

One of the more commonly used strategies by investors is to follow insider transactions. Some might even assume that since insiders are “in the know”, they might be better equipped to predict the share price of a company.

Consistent insider purchases may indicate an undervalued share price. On the other hand, there might be others who would turn the argument around and say that if insiders are selling, then bad news is likely to be around the corner – though it must be noted that there is no basis for that as insiders might be selling for their own personal reasons.

In addition, while substantial shareholders (shareholders with a stake of 5% or more in a company) are often not involved with running the company and are thus not strictly classified as ‘insiders’, their moves with a company’s shares might be worth noting too for the simple reason that substantial shareholders have a big stake in a company and would likely have done the requisite homework.

With that in mind, let’s take a look at three companies with both insider and substantial shareholder activity over the past two weeks.

1. Civmec (SGX: P9D)

Civmec provides heavy engineering and construction services to the resources (i.e. oil & gas and mining) and infrastructure sectors in Australia. With its headquarters and facilities located in the country, it is able to add value by virtue of its close proximity to the operations of the Australian companies that it serves.

On 6 June 2014, Mr. Michael Lorrain Vaz, a substantial shareholder of the firm, purchased 50,000 shares at S$0.70 each via the open market. The purchase works out to a total sum of S$35,000 and increases his stake in the company slightly from 7.74% to 7.75%. Civmec is currently trading at S$0.70 with a P/E (price/earnings) ratio of 11 and offers an annualized distribution yield of 1.0%.

2. Q&M Dental Group (SGX: QC7)

Established in 1996 with just 1 outlet, Q&M Dental has since grown from strength to strength with more than 50 clinics “strategically located island-wide”, 5 dental centres, and 1 mobile dental clinic at last count. The company is the largest private dental healthcare group in Singapore and “currently serve more than 600,000 patients island-wide” through a pool of more than 170 dentists.

Besides its operations in Singapore, Q&M Dental also has interests in clinics in Malaysia and China and is in the midst of its expansion plans in the latter.

On 9 June 2014, IMC Heritas Investments Ltd acquired 60.545 million shares in total at a fixed price of S$0.48 each as set out in a deal it had with a number of Q&M Dental’s substantial shareholders that include Quan Min Holdings Pte. Ltd., Mr. Koh Shunjie, Kelvin, and Ms. Koh Shunhui, Felicia. The transaction brings IMC Heritas Investments’ direct and deemed interest in Q&M Dental to 9.06% and 9.42% respectively. In addition, IMC Heritas Investments also has an option to subscribe for up to 63 million new shares in Q&M Dental.

Q&M Dental Group is currently selling for S$0.475 apiece. At that price, it commands a lofty P/E ratio of 44 and sports a modest dividend yield of 2.7%.

3. Tianjin ZhongXin Pharmaceutical Group (SGX: T14)

Tianjin Zhongxin Pharmaceutical Group is a pharmaceutical corporation that holds investments in other pharmaceutical companies. Through its interests in 50 branch companies and subsidiaries, it covers a wide range of fields in pharmacy including Chinese medicinal materials, pharmaceutical raw materials, and nutritional & health products, etc. All told, it has nearly 800 product varieties in 20-odd types of preparations being registered.

In addition, the company has a marketing network that extends to more than 30 countries. According to Tianjin Zhongxin’s official profile, it also has joint ventures in place with other global pharmaceutical giants like “Glax Smithkline [sic] America, Teva Israel, Baxter America, Shinpoong Seoul Korea etc.”

Starting from early May, the asset management outfit Value Partners had been steadily paring down its stake in the firm. As of 12 June 2014, its interest in Tianjin Zhongxin stands at 19.977 million shares or 9.99% of the pharmaceutical company. Tianjin ZhongXin Pharmaceutical Group is trading at S$1.065 currently. It’s selling for 15 times trailing earnings at that price and offers an annualized dividend yield of 1.5%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.