2 Companies with Insider and Substantial Shareholder Activity

Credit: reynermedia

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 who control 5% or more of a company) are often not involved with managing 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 these in mind, let’s take a look at two companies with either insider activity or substantial shareholder activity over the past two weeks.

1. KSH Holdings Limited (SGX: ER0)

Incorporated in 1979, KSH Holdings’ principal activities revolve around building construction and the development of properties.

According to KSH, it has attained a BCA grading of A1, which is the highest grade awarded by the authorities to contractors; with a high grade comes the ability to bid for larger and more complex projects from the government.

On 15 June 2015, Yip Sau Leung, a substantial shareholder of KSH and an associate professor at the Nanyang Technological University, had bought 52,600 shares at an average price of S$0.50 each. With that, his stake in the firm stepped up slightly from 7.9895% to 8.0023%.

KSH released its earnings for the fiscal year ended 31 March 2015 (FY2015) near the end of last month. The headline numbers weren’t the best with revenue slipping 16% to S$240 million and profit down 7% to S$41.7 million. But, the company’s “cautiously optimistic on the outlook of its performance in FY2016” partly due to healthy sales of its residential and mixed development projects at prices that are “within or better than expectation.”

Shares of KSH last changed hands at S$0.51 on Wednesday. At that price, the firm’s valued at merely 5 times its trailing earnings.

2. Lum Chang Holdings Limited (SGX: L19)

With a history that dates back to the 1940s, Lum Chang is today one of Singapore’s leading construction firms with a total construction portfolio to date of more than S$8 billion.

The construction works that the firm has had a hand in range from institutional to civil and infrastructure; from retail to leisure; and from industrial to residential.

Raymond Lum Kwan Sung, the Executive Chairman of Lum Chang, has bought shares of the firm on multiple occasions since the start of June, pushing his total stake in the firm up from 72.632 million shares to 73.101 million. Lum’s latest purchase was made on 16 June 2015 when he bought 137,600 shares at an average price of S$0.375 each.

Based on its closing price of S$0.38 on Wednesday, Lum Chang is valued at a miserly 4.3 times its trailing earnings.

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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.