The Matthews Japan Fund (Trades, Portfolio) released its equity portfolio for the first quarter of 2022 earlier this week.
Part of San Francisco-based investment firm Matthews Asia, the fund is managed by Taizo Ishida and Shuntaro Takeuchi. It invests in Japanese companies that have sustainable growth in order to generate long-term capital appreciation.
Based on these criteria, the fund established 12 new positions during the three months ended March 31, sold out of 11 stocks and boosted or trimmed a number of other existing holdings. The most notable new investments in the firm’s NPORT-P filing were Tokyo Electron Ltd. (TSE:8035, Financial), NTT Data Corp. (TSE:9613, Financial), Mitsubishi Corp. (TSE:8058, Financial), Ajinomoto Co. Inc. (TSE:2802, Financial) and TDK Corp. (TSE:6762, Financial).
Investors should be aware that, just like 13F reports, NPORT-P reports do not provide a complete picture of a guru’s holdings to the public. Filed by certain mutual funds after each quarter’s end, NPORT-P filings collect a wide variety of information on the fund for the SEC’s reference, but in general, the only information made public is in regard to long equity positions. Unlike 13Fs, they do require some disclosure for long equity positions in foreign stocks. Despite their limitations, even these limited filings can provide valuable information.
Tokyo Electron
The Japan Fund invested in 77,700 shares of Tokyo Electron (TSE:8035, Financial), allocating 3.17% of the equity portfolio to the holding. The stock traded for an average price of 28,298.81 yen ($446.91) per share during the quarter.
It is now the sixth-largest holding.
The company, which manufactures electronics and semiconductors, has a market cap of 8.52 trillion yen; its shares closed at 54,790 yen on Monday with a price-earnings ratio of 21.7, a price-book ratio of 7 and a price-sales ratio of 4.56.
The GF Value Line, which takes historical ratios, past performance and future earnings projections into consideration, suggests the stock is modestly overvalued currently.
Tokyo Electron’s financial strength was rated 10 out of 10 by GuruFocus, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 13.86 that indicates it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.
The company’s profitability scored a 9 out of 10 rating. In addition to operating margin expansion, Tokyo Electron is being supported by strong returns on equity, assets and capital that top a majority of competitors. It also has a high Piotroski F-Score of 8 out of 9, meaning its business conditions are healthy. Consistent earnings and revenue growth contributed to a predictability rank of 1.5 out of five stars. According to GuruFocus, companies with this rank return an average of less than 6% annually over a 10-year period.
Matthews has the largest position in Tokyo Electron with 0.05% of its outstanding shares. The iShares MSCI ACWI ex. U.S. Exchange-Traded Fund also owns the stock.
NTT Data
The fund picked up 1.25 million shares of NTT Data (TSE:9613, Financial), dedicating 1.96% of the equity portfolio to the stake. During the quarter, shares traded for an average price of 2,242.75 yen each.
The information technology company has a market cap of 3.41 trillion yen; its shares closed at 2,431 yen on Monday with a price-earnings ratio of 28.93, a price-book ratio of 2.81 and a price-sales ratio of 1.36.
According to the GF Value Line, the stock is significantly overvalued currently.
GuruFocus rated NTT Data’s financial strength 4 out of 10 on the back of a comfortable level of interest coverage and an Altman Z-Score of 2.73 that indicates it is under some pressure currently. The ROIC also slightly surpasses the WACC, so value is being created.
The company’s profitability fared better, scoring an 8 out of 10 rating. Although the operating margin is declining, its returns outperform over half of its industry peers. NTT Data also has a high Piotroski F-Score of 8, suggesting and, due to steady earnings and revenue growth, a 3.5-star predictability rank. GuruFocus says companies with this rank return, on average, 9.3% annually.
Matthews Japan has the largest holding in the stock with 0.09% of its outstanding shares. The iShares MSCI ACWI ex. U.S. ETF also has a position in NTT Data.
Mitsubishi
Matthews entered a 655,200-share investment in Mitsubishi (TSE:8058, Financial), giving it 1.96% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of 4,048.95 yen.
The conglomerate, which operates in the natural gas, industrial materials, petroleum and chemicals, mineral resource, automotive and several other industries, has a market cap of 6.49 trillion yen; its shares closed at 4,397 yen on Monday with a price-earnings ratio of 10.04, a price-book ratio of 1.05 and a price-sales ratio of 0.4.
Based on the GF Value Line, the stock appears to be modestly overvalued currently.
Mitsubishi’s financial strength was rated 3 out of 10 by GuruFocus. Although the company has issued new long-term debt in recent years, it is still at a manageable level due to adequate interest coverage. The Altman Z-Score of 1.67, however, warns it could be at risk of bankruptcy if it does not improve its liquidity.
The company’s profitability scored a 6 out of 10 rating. Despite having declining margins, returns outperform over half of its competitors. Mitsubishi is also supported by a moderate Piotroski F-Score of 6, indicating operations are typical for a stable company, and a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.
With a 0.08% stake, the Hennessy Japan Fund (Trades, Portfolio) is Mitsubishi’s largest guru shareholder. The iShares MSCI ACWI ex. U.S. ETF also owns the stock.
Ajinomoto
The fund purchased 766,900 shares of Ajinomoto (TSE:2802, Financial), expanding the equity portfolio by 1.73%. The stock traded for an average price of 3,353.95 yen per share during the quarter.
The food company, which specializes in amino acids and seasonings, has a market cap of 1.76 trillion yen; its shares closed at 3,278 yen on Monday with a price-earnings ratio of 22.82, a price-book ratio of 2.73 and a price-sales ratio of 1.58.
The GF Value Line suggests the stock is significantly overvalued currently.
GuruFocus rated Ajinomoto’s financial strength 4 out of 10. In addition to sufficient interest coverage, the company has a high Altman Z-Score of 3.57 that indicates it is in good standing. The ROIC also eclipses the WACC, so value creation is occurring.
The company’s profitability fared even better with a 7 out of 10 rating. While the operating margin is in decline, returns top over half of its industry peers. Ajinomoto also has a high Piotroski F-Score of 9 and a one-star predictability rank.
Matthews holds 0.14% of Ajinomoto’s outstanding shares, while the iShares MSCI ACWI ex. U.S. ETF has 0.02%.
TDK
The Japan Fund entered a 568,200-share holding of TDK (TSE:6762, Financial), which had an impact of 1.63% on the equity portfolio. Shares traded for an average price of 12,882.1 yen each during the quarter.
The company, which manufactures electronic materials, components and recording and data storage media, has a market cap of 1.55 trillion yen; its shares closed at 4,080 yen on Monday with a price-earnings ratio of 16.17, a price-book ratio of 1.31 and a price-sales ratio of 1.05.
According to the GF Value Line, the stock is currently modestly undervalued.
TDK’s financial strength was rated 4 out of 10 by GuruFocus. Despite issuing new long-term debt over the past several years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 2.18 shows the company is under some pressure since assets are building up at a faster rate than revenue is growing.
The company’s profitability scored an 8 out of 10 rating. Although the operating margin is in decline, TDK’s returns outperform over half of its competitors. It also has a moderate Piotroski F-Score of 6. While the company has recorded losses in operating income, steady earnings and revenue growth contributed to a 3.5-star predictability rank.
Matthews is the company’s largest guru shareholder with 0.15% of its outstanding shares. The iShares ETF also has a position in TDK.
Additional trades and portfolio performance
During the quarter, the Japan Fund also created positions in Shimano Inc. (TSE:7309, Financial), CyberAgent Inc. (TSE:4751, Financial), Hitachi Ltd. (TSE:6501, Financial), Itochu-Shokuhin Co. Ltd. (TSE:2692, Financial), IHI Corp. (TSE:7013, Financial), Toppan Inc. (TSE:7911, Financial) and Kikkoman Corp. (TSE:2801, Financial).
Matthews’ $1.26 billion equity portfolio, which is composed of 53 stocks, is largely invested in the technology and industrials sectors.
The fund returned -1.92% in 2021, underperforming the MSCI Japan Index’s 2.04% return.
