The Matthews Asia Small Companies Fund (Trades, Portfolio), part of San Francisco-based investment firm Matthews International Capital Management, disclosed 13 new positions in its third-quarter portfolio, which was released earlier this week.
Managed by Tiffany Hsiao and Beini Zhou, the fund invests in smaller companies across Asia, with the exception of Japan, that are capable of sustainable growth based on several fundamental characteristics. Its primary goal is long-term capital appreciation.
The fund's five largest trades for the quarter were almost completely made up of new holdings, which were Flat Glass Group Co. Ltd. (HKSE:06865, Financial), Asmedia Technology Inc. (TPE:5269, Financial), Marico Ltd. (BOM:531642, Financial) and Ginlong Technologies Co. Ltd. (SZSE:300763, Financial). One sale also made the top five, which was the divestment of the Hangzhou Onechance Tech Corp. (SZSE:300792) position.
Flat Glass Group
The Asia Small Companies Fund invested in 1.96 million shares of Flat Glass Group, allocating 3.21% of the equity portfolio to the stake. The stock traded for an average price of 12.29 Hong Kong dollars ($1.58) per share during the quarter.
The Chinese company, which manufactures glass products, has a HK$78.12 billion market cap; its shares were trading around HK$21 on Thursday with a price-sales ratio of 49.39, a price-book ratio of 8.53 and a price-sales ratio of 8.46.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Flat Glass Group's financial strength 6 out of 10. Although the company has issued approximately 2.2 billion yuan ($333.04 million) in new long-term debt over the past three years, it is at a manageable level due to having adequate interest coverage. The Altman Z-Score of 6.79 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The return on invested capital is above the weighted average cost of capital, indicating value creation.
The company's profitability scored a 7 out of 10 rating. Although the operating margin is in decline, it still outperforms a majority of competitors. Flat Glass also has strong returns that are outperforming versus the industry as well as a moderate Piotroski F-Score of 6, which suggests business conditions are stable.
The fund holds 0.10% of the company's outstanding shares.
Asmedia Technology
The fund picked up 71,000 shares of Asmedia Technology, dedicating 2.19% of the equity portfolio to the position. During the quarter, shares traded for an average price of 1,654.32 New Taiwan dollars ($57.96) each.
The Taiwan-based company, which manufactures semiconductor memory chips, has a market cap of NT$97.26 billion; its shares closed at NT$1,405 on Wednesday with a price-earnings ratio of 49.3, a price-book ratio of 8.73 and a price-sales ratio of 18.05.
According to the Peter Lynch chart, the stock is overvalued.
Asmedia Technology's financial strength and profitability were both rated 9 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the company has a robust Altman Z-Score of 34.99. The ROIC also eclipses the WACC, indicating value creation.
The company is also being supported by an expanding operating margin, strong margins that outperform a majority of industry peers and a moderate Piotroski F-Score of 4. Asmedia also has a predictability rank of one out of five stars. GuruFocus says companies with this rank typically return, on average, 1.1% annually over a 10-year period.
The Matthews Pacific Tiger Fund (Trades, Portfolio) has the largest stake in Asmedia with 1.19% of outstanding shares. The Small Companies Fund holds 0.10%.
Marico
The fund entered a 541,371-share holding in Marico, giving it 1.63% space in the equity portfolio. The stock traded for an average per-share price of 361.48 rupees ($4.89) during the quarter.
The Indian consumer goods company, which manufactures health, beauty and wellness products, has a market cap of 478.93 billion rupees; its shares closed at 371.2 rupees on Wednesday with a price-earnings ratio of 43.88, a price-book ratio of 13 and a price-sales ratio of 6.69.
Based on the Peter Lynch chart, the stock appears to be overvalued.
Marico's financial strength and profitability were both rated 8 out of 10 by GuruFocus, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 15.6, which indicates the business is healthy despite the fact assets are building up at a faster rate than revenue is growing. The ROIC also surpasses the WACC, suggesting value creation.
In addition to operating margin expansion, the company is supported by strong returns that outperform a majority of competitors. Marico has a low Piotroski F-Score of 3, however, which indicates conditions are in poor shape. Even though the company has recorded a decline in revenue per share over the past 12 months, it still has a 3.5-star predictability rank. According to GuruFocus, companies with this rank return, on average, 9.3% annually.
The fund holds 0.04% of the Marico's outstanding shares.
Ginlong Technologies
Matthews Asia purchased a 146,210-share position in Ginlong Technologies. The trade had an impact of 1.56% on the equity portfolio. During the quarter, the stock traded for an average price of 92.91 yuan per share.
The industrial manufacturer that produces photovoltaic inverters for solar and wind energy applications, which is headquartered in China, has a market cap of 16.16 billion yuan; its shares were trading around 121 yuan on Thursday with a price-earnings ratio of 56.15, a price-book ratio of 15.8 and a price-sales ratio of 8.69.
The Peter Lynch chart suggests the stock is overvalued.
GuruFocus rated Ginlong's financial strength 8 out of 10 on the back of comfortable interest coverage and a high Altman Z-Score of 12.45.
The company's profitability did not fare as well, scoring a 5 out of 10. In addition to an expanding operating margin, Ginlong has strong returns that outperform a majority of industry peers, but they are underperforming versus the company's history.
The Small Companies Fund holds 0.11% of Ginlong's outstanding shares.
Hangzhou Onechance Tech
The fund sold its 119,025 remaining shares of Hangzhou Onechance Tech, impacting the equity portfolio by -1.82%. Shares traded for an average price of 156.19 yuan each during the quarter.
GuruFocus estimates Matthews Asia gained 17.10% on the investment since establishing it in the first quarter.
The Chinese company, which provides e-commerce services like merchandise control, marketing promotions, customer service, warehouse logistics and platform distribution, has a market cap of 23.20 billion yuan; its shares were trading around 162.33 yuan on Thursday with a price-earnings ratio of 76.86, a price-book ratio of 17.32and a price-sales ratio of 15.79.
According to the Peter Lynch chart, the stock is overvalued.
On the back of comfortable interest coverage and a solid Altman Z-Score of 359.82, Hangzhou Onechance's financial strength was rated 9 out of 10 by GuruFocus.
The company's profitability scored a 5 out of 10 rating. While margins and returns outperform a majority of competitors, the revenue per share has declined over the past year.
No gurus currently own the stock.
Additional trades and portfolio performance
Other companies Matthews invested in during the quarter included AK Medical Holdings Ltd. (HKSE:01789), IFB Industries Ltd. (BOM:505726), Keppel DC REIT (SGX:AJBU), Chindata Group Holdings Ltd. (CD) and Shanghai AtHub Co. Ltd. (SHSE:603881). It also divested of 13 positions and added to or trimmed a slew of other holdings.
Over half of the Asia Small Companies Fund's $164 million equity portfolio, which is composed of 63 stocks, is invested in the technology and health care sectors.
According to its fact sheet, the fund returned 17.38% in 2019, outperforming the MSCI All Country Asia ex. Japan Small Cap Index's 7.58% return.
Disclosure: No positions.
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