When a listed company buys its own shares, it usually means that the stock price is lower than the “internal value of the company”.
At the beginning of 2022, the market did not get out of the expected spring market, but fell all the way, and all major indexes were destroyed. Compared with the rapid trend of “sunshine base” and “100 billion subscription” at the beginning of 2021, it has made a 180 degree turn.
Stock prices have fallen sharply in a row, and institutions and retail investors have suffered heavy losses. The market is no longer hot with continuous transactions exceeding trillion. The trading volume once fell below 800 billion, nearly 500 billion less than the high trading volume of the year.
However, although the market is in the doldrums, a share of funds has bucked the trend. In less than two months this year, another 100 listed companies have offered share repurchase plans.
01. Share price downturn
subdivision faucets have started by themselves
At the end of new year’s day in 2022, China Resources Double-Crane Pharmaceutical Co.Ltd(600062) (600062), whose share price has been hovering in place for many years, threw out share repurchases, repurchasing no more than 23.5 million shares at a price of no more than 18.37 yuan / share, starting the first shot of listed companies’ admission repurchase in 2022.
In 2018, China Resources Double-Crane Pharmaceutical Co.Ltd(600062) closed at 11.29 yuan / share, while the latest share price was only a little over 12 yuan. In the ups and downs of A-Shares over the past three years, the sense of participation was not high, and the latest valuation also dropped to 12 times. Now listed companies can’t sit still. They have to buy 400 million out of their own pocket.
The downturn of stock price not only makes small and medium-sized market value companies unacceptable, but also makes leading enterprises enter the market for repurchase.
The Shenzhen Goodix Technology Co.Ltd(603160) (603160), once the leader of consumer electronics and the leader of off screen fingerprint identification, can’t afford to cut the share price twice in two years: from the highest 385 yuan / share to the current 90 yuan / share.
On February 11, Shenzhen Goodix Technology Co.Ltd(603160) convened the board of directors to consider and approve the repurchase proposal. It is planned to use its own funds to repurchase the company’s shares in the form of centralized bidding transaction. The repurchase price is no more than 126 yuan / share, and the repurchase amount is no less than 400 million and no more than 500 million.
Three days after the repurchase plan was passed, Shenzhen Goodix Technology Co.Ltd(603160) began to “copy the bottom” of nearly 18 million yuan in the secondary market and bought nearly 200000 shares. These repurchased shares are planned to be used by the company to implement the employee stock ownership plan in the future.
In this round of adjustment, medical stocks in the hardest hit areas also joined the repurchase army.
The former benchmark of track stocks and the “water seller” in innovative drugs, cro leader Hangzhou Tigermed Consulting Co.Ltd(300347) (300347), finally failed to resist the major adjustment of the pharmaceutical sector. Even if the company’s performance increased by more than 50% in 2021, the profit scale is expected to reach 3 billion, and the share price has fallen by half from the high point six months ago.
In August last year, Hangzhou Tigermed Consulting Co.Ltd(300347) sold a repurchase plan of no more than 190 yuan / share, with a total amount of no less than 250 million and no more than 500 million. According to the company’s announcement, as of November last year, it had repurchased a total of 500 million yuan. After the share price continued to decline, the repurchase plan of the same scale was again thrown out on February 14. The repurchase price was changed to no more than 120 yuan / share, and about 16 million yuan was bought back on February 15.
In addition to the increasing Hangzhou Tigermed Consulting Co.Ltd(300347) , Shenzhen Mindray Bio-Medical Electronics Co.Ltd(300760) (300760), known as “equipment Mao”, under the pressure of centralized purchase price reduction, it quickly turned down after hitting a new high last year. It took less than two months to go through a round of “half price” market, and then hovered at the bottom.
On January 13 this year, Shenzhen Mindray Bio-Medical Electronics Co.Ltd(300760) directly launched a large repurchase plan of 1 billion, and plans to repurchase 2.5 million shares at a price of no more than 400 yuan / share. The purpose of repurchase is more direct, and the registered capital will be cancelled and reduced according to law. Such capital reduction generally will not have an impact on the performance of listed companies, but will reduce the number of share capital and improve earnings per share by reducing the denominator.
In other words, listed companies feel that the price given by the market is too low, “I won’t sell”.
In this round of repurchase army, not all share prices have retreated sharply. For Tianjin Zhonghuan Semiconductor Co.Ltd(002129) (002129) in the photovoltaic track, the board of directors considered and approved the repurchase of the company’s shares with its own funds in January this year, and the repurchase amount shall not exceed 391 million. Unlike the above-mentioned companies, the company’s repurchase share price is set at no more than 61.55 yuan / share, which is nearly 10% higher than the historical highest share price of 56.24 yuan / share set by listed companies last August.
02. Can share repurchase become a strong shot in the market?
Listed companies buy back the company’s shares or major shareholders increase their holdings, which is usually understood as a great benefit.
Because from the perspective of information asymmetry, listed companies know most about themselves. From specific sales orders to production arrangements, and then to the company’s future strategic planning and layout, listed companies generally have very detailed information and data. When a listed company buys its own shares, it usually means that the stock price is lower than the “internal value of the company”.
The most typical case is Buffett’s Berkshire Hathaway. Buffett and Munger will express their views on the company’s share price at each shareholders’ meeting, and emphasize that once the price is lower than the value, they will buy back the company’s shares.
In 2020, due to the impact of the epidemic, the investment business lost $54.5 billion, Berkshire Hathaway lost $49.75 billion in the first quarter of this year, and achieved a net profit of $26.3 billion in the second quarter, a year-on-year increase of nearly 87%, reversing the decline at the beginning of the year. Meanwhile, Berkshire Hathaway repurchased its own shares for $5.1 billion, spending a record amount of money, and then its share price continued to hit new highs.
After the continuous adjustment of the real estate industry, the major shareholders and the management threw out the shareholding increase plan in August last year, and the company’s share price opened higher the next day, followed by a V-shaped reversal to recover the decline all the way.
Of course, there are reverse cases in which the repurchase effect is effective, but also the repurchase effect is not good. Listed companies “trap” their own, take over the high-level offer of the employee stock ownership plan, and the actual controller calls on employees to buy their own shares and even promises to find out the bottom. Finally, there are endless reverse cases.
Whether the share repurchases of listed companies can lead to a strong reversal of the stock price, although it can not give a completely positive answer, but the company’s insiders support their own stock price with practical actions should also become an important reference for investors to judge the value of listed companies. Even if a single company cannot be confirmed, when more companies continue to join the repurchase army, they may as well be more patient with the current weak market environment and have more confidence in the development of the future market.
On the other hand, whether the decline of “core assets” after the carnival last year or the continuous decline of “track stocks” before the carnival this year have brought great losses to the majority of investors, and we should realize a common sense after losing money: whether it is a blue chip leader with steady development or a track player with rapid growth, We should not be overly optimistic and blindly follow suit.
