Management, directors of local listcos scoop up shares as more stocks hit 52-week lows

DIRECTORS and members of management at several Singapore-listed companies have been actively picking up shares amid general weakness in market sentiment, with many counters now close to 52-week lows.

Market watchers said this indicates confidence in these companies’ prospects, and sentiments that the respective stocks are undervalued. Counters with a large volume of insider buys could also be up for privatisation, they added.

Bloomberg data shows 331 out of the 668 counters with a primary listing on the Singapore Exchange (SGX) have hit their 52-week lows this year. Of these, 27 counters have seen significant insider buying this year – either of at least 500,000 shares, or shares that account for more than 0.5 per cent of the counter’s total trading volume.

RHB analyst Jarick Seet said that insider buying can be viewed more as a positive than a negative.

“The higher the quantity and frequency, as well as higher purchase price, usually means the insiders are bullish and feel that the company is undervalued and thus will put their money where they believe will give them more value,” he said.

But he warned that there is a risk that these insiders could have misinterpreted the business outlook. “There are cases where the share price continues to drop further despite insiders buying. In addition, some insiders could be looking at different time horizons… hence investors must consider if that factor suits their investment profile.”

Buying could also be a precursor to privatisation.

Robson Lee, a partner in Gibson Dunn’s Singapore office, noted that directors actively buying shares in a company could “be a sign that there is an impending general offer” in the pipelines, as individual directors buying shares could be part of a consortium that is preparing to table an offer to privatise the company,

Justin Tang, head of research for Asia at investment advisor United First Partners, said insider purchases typically indicate “a view that a company’s actual business prospect is not reflected in its share price”.

Where that is the case, majority shareholders may think it makes sense to buy the rest of the company back from shareholders. But Tang added that doing so would not necessarily be easy.

“Besides the macro environment, the potential for privatisation depends on access to financing as well as the current stake of the major shareholder considering a buyout,” he added.

Among the interesting names on the list of companies where there has been substantial insider buying is cocoa ingredients producer JB Foods. About 18.2 per cent of its trading volume year to date can be attributed to insider moves, according to Bloomberg data.

Chief executive Tey How Keong had been adding to his stake after the stock hit a 52-week low of S$0.455 on Mar 17. Tey picked up 29,600 shares at S$0.47 apiece on Mar 23; and 82,000 shares on Apr 29 at a unit price of S$0.49. He purchased another 97,000 shares on May 9 at S$0.495 apiece. His direct stake in the company stands at 1.32 per cent and his total stake at 46.8 per cent.

Low See Ching, deputy chief executive and executive director at Oxley Holdings, has also been on a buying spree. Over 10 transactions from Feb 28 to May 25, Low picked up a total of 556,000 shares with unit prices ranging from S$0.17 to S$0.178. Oxley shares hit a 52-week low of S$0.169 on Mar 15. 

A-Sonic Aerospace’s Janet LC Tan has also been buying shares after the stock hit its low on Feb 21. From Feb 28 to May 6, Tan bought 650,000 shares over 12 purchases. 

Meanwhile, Kwek Leng Peck, executive chairman at Hong Leong Asia, scooped up shares in 2 transactions before the stock hit a 52-week low of S$0.73 on May 25. Kwek bought 590,000 shares of Hong Leong Asia on Mar 7 at S$0.795 each, and picked up another 410,000 shares on Mar 8 at S$0.78 each.

Gibson Dunn’s Lee said directors do often buy shares to support a company’s share price when it is trading below fair value and to “shore up market confidence”.