According to data statistics, as of June 23, this year, 15 listed companies have released plans to stabilize their stock prices. In terms of triggering conditions, all 15 companies were due to their stocks falling below net asset value or breaking below par, and they have chosen to increase shareholdings by controlling shareholders, directors, supervisors, etc., to stabilize their stock prices. In terms of company nature, 6 are banks, all triggered the stabilization of stock prices due to their stocks falling below net asset value for 20 consecutive days, and they have stabilized their stock prices through increased shareholdings.
Why are bank stock prices sluggish this year, with frequent occurrences of continuous falls below net asset value? Why is there a lack of repurchases, and has increased shareholding become the unanimous choice for stabilizing stock prices? What are the positive effects of stock price stabilization measures? Fundamentally, how should listed companies maintain long-term stock price stability? Jia Pang, Partner and Managing Director of Frost & Sullivan Greater China, was interviewed by Securities Daily to analyze the stock price stabilization measures of various enterprises.
Securities Daily
For listed companies, stabilizing stock prices is not only a short-term strategy but also a long-term goal.
On June 22, Lux shares announced that since the termination conditions of the stock price stabilization measures had not been triggered, the company's directors and executives will increase their shareholdings again and continue implementing the stock price stabilization plan. This is already the third time this year that Lux shares have implemented a stock price stabilization plan.
According to Tonghuashun iFinD data statistics, as of June 23, this year, 15 listed companies have released plans to stabilize their stock prices. In terms of triggering conditions, all 15 companies were due to their stocks falling below net asset value or breaking below par, and they have chosen to increase shareholdings by controlling shareholders, directors, supervisors, etc., to stabilize their stock prices.
The benefits of implementing stock price stabilization measures are obvious for listed companies. "Stock price stabilization measures reflect the active fulfillment of social responsibilities by listed companies, effectively safeguarding shareholder rights and interests, helping to boost investor confidence, and maintaining a continuously improving situation for listed companies." Zhang Yuancheng, Managing Director of the Investment Banking Department of Union Securities, said in an interview with Securities Daily reporters.
"In addition to boosting market confidence, stock price stabilization measures more importantly represent the firm belief of the company and management in the company's future business development and long-term intrinsic value enhancement." Jia Pang, Partner and Managing Director of Frost & Sullivan Greater China, told Securities Daily reporters.
Among the groups of listed companies stabilizing their stock prices this year, the number of banks is particularly high. Tonghuashun iFinD data shows that among the 15 companies, 6 are banks, accounting for 40%, and all were triggered by their stocks falling below net asset value (the closing price of the stock has been lower than the most recent audited net asset per share for 20 consecutive trading days).
In addition, some companies are triggered by their stocks breaking below par. For example, as mentioned earlier, Lux shares triggered the start of the stock price stabilization measures on March 18 this year, because the closing price of the company's stock was lower than the issue price for 5 consecutive trading days.
One major factor in the fall in net asset value of many bank stocks is the decrease in investors' expectations and concerns about bank stocks.
"Currently, the negative impact of the pandemic on economic development and the uncertainty about bank profitability have had a certain impact on investors' expectations and confidence." Jia Pang told Securities Daily reporters. The development of domestic banking has entered a relatively mature period, and the performance growth of listed banks has generally tended to be stable, making it difficult to find new performance growth points.
Especially for small and medium-sized banks, due to continuous challenges from industry digital transformation, the uncertainty of future development is relatively high.
Generally speaking, listed companies choose to increase shareholdings or repurchase shares to stabilize their stock prices, but there has been no repurchase method this year.
"Affected by factors such as the pandemic, some listed companies have insufficient cash flow and lack effective financing means to raise funds for repurchase. The possibility of implementing share repurchase in this situation is relatively small." Zhang Yuancheng analyzed.
In addition, currently, the operability of bank repurchases is not strong. For example, a rural commercial bank frankly stated that since the repurchase of stocks by domestic commercial banks is a major precedentless matter, and according to laws, regulations, and relevant regulatory provisions, after the bank repurchases shares, it can only cancel and reduce its registered capital. Reducing the registered capital requires approval from the China Banking and Insurance Regulatory Commission or its local branches, and it also involves a series of legal procedures such as creditor announcements. It is not feasible to adopt the method of repurchasing shares and reducing registered capital.
Zhang Yuancheng said that in comparison, the means of increase shareholdings are more diverse. They can be directly increased by controlling shareholders, directors, supervisors, etc., or through trust plans and asset management products established by employees of the company's controlling shareholders and affiliated enterprises to increase their company shares. This not only effectively reduces the financial pressure on all parties and plays a certain role in protecting the market, but also helps achieve a rebalancing of interests among internal group members and jointly boost the future business development of listed companies.
In the long run, although methods such as increasing shareholdings can stabilize stock prices in the short term, fundamentally, listed companies need to cultivate internal strength and deepen cultivation.
Zhang Yuancheng believes that listed companies need to concentrate advantageous resources to highlight the development of main businesses, operate legally and compliantly, and strive to repay investors through good company performance and active dividend policies, so as to promote the long-term stability of listed company stock prices.
"Listed companies not only need to bring value to shareholders but also create value for society and fulfill social responsibilities." Jia Pang said. Listed companies continuously enhance the core competitiveness and influence of the enterprise through endogenous growth and external expansion, so as to truly promote the long-term stability and growth of listed company stock prices.
Frost & Sullivan Insights ·>Extended Reading
Q: Why are bank stock prices sluggish this year, with frequent occurrences of continuous falls below net asset value?
A:In the short term, although the government adopted a relatively loose monetary policy in the first half of 2022, affected by the COVID-19 pandemic, credit demand fluctuated significantly, economic indicators weakened, consumption was weak, short-term market confidence was dampened, and the market generally worried about the negative impact of an increase in non-performing loan rates on banks, leading to sluggish bank stock price performance.
In the long run, the development of domestic banking has entered a relatively mature period, and the performance growth of each listed bank has tended to be stable, making it difficult to find new performance growth points. Especially for small and medium-sized banks, due to continuous challenges from industry digital transformation, the uncertainty of future development is relatively high. Therefore, whether it is the current negative impact of the COVID-19 pandemic on economic development or the long-term concern about the improvement of bank profitability, both have had a certain impact on investors' expectations and confidence.
Q: Why is there a lack of repurchases, and has increased shareholding become the unanimous choice for stabilizing stock prices?
A:The roles of repurchase and increase shareholding are both to stabilize market sentiment and boost market confidence, thereby stabilizing stock prices. The subject of repurchase is the listed company itself, using its own cash to buy its own shares in the open market. While increase shareholding is when the major shareholders and management of the listed company purchase their own company's shares through the secondary market. Increase shareholding is usually due to the low stock price of the company, and the major shareholders and management carry out operations to increase investor confidence without affecting the equity structure of the listed company.
Q: What are the positive effects of stock price stabilization measures? Fundamentally, how should listed companies maintain long-term stock price stability?
A:When the stock price of a listed company is seriously undervalued due to certain subjective or objective factors, the listed company can generally take the measure of repurchase, or shareholders, directors, supervisors, and senior management can take the measure of increase shareholding to boost market confidence and stabilize stock prices. In addition to boosting the confidence of the capital market, stock price stabilization measures more importantly represent the firm belief of the company and management in the company's future business development and long-term intrinsic value enhancement.
Fundamentally, listed companies not only need to bring value to shareholders but also create value for society and fulfill social responsibilities. As representatives of outstanding enterprises in various industries, listed companies achieve high-quality and sustainable development through endogenous growth and external expansion, continuously enhancing the core competitiveness and influence of the enterprise, thereby helping listed companies maintain long-term stock price stability and growth.
*This article is reprinted from Securities Daily, with reporter Xing Meng, and the original title is 'Within the Year, 15 Listed Companies Released Plans to Stabilize Their Stock Prices, All Using the Method of Increasing Shareholdings'.
