With net assets of $270.04 million and a 5.1% average annual return over the past 10 years, the T. Rowe Price Japan Fund (PRJPX) invests in the common stocks of companies either based or with primary operations in Japan. Relative to its benchmark, it is most overweight in the information technology and services sector, and underweight the banking sector. Fund managers increased their overweight exposure to the commercial and wholesale trading sector, where they believe yen weakness will fuel gains. Smaller-cap stocks also form a large portion of the fund as they promise better growth.
On the macro environment, Fund Manager M. Campbell Gunn commented in their third quarter letter:
“The new government appears to have successfully broken Japan's pattern of policy inertia and has jump-started the economy and markets with the magnitude of its program. However, progress in addressing the economy's structural challenges is necessary before investors can be fully secure that Japan has left its lost decades behind. Below the surface, structural issues, including the country's reliance on energy imports and on export-driven growth instead of domestic consumption, have yet to be addressed. On the level of corporate profits, we see further room for upgrades to earnings estimates, which are already trending above those in other regions. With margins and returns starting from a low base, we see ample room for expansion, and valuations appear reasonable. While we believe Japan deserves a place in all diversified portfolios, those deciding to increase their allocation to the market should do so with their eyes open, and with some of the patience that has helped Japanese citizens navigate their lost decades.”
The largest new positions added to the fund in the third quarter are: Nomura Holdings Inc. (TSE:8604), Hikari Tsushin Inc. (TSE:9435), Takeda Pharmaceutical Co. Ltd. (TSE:4502), AEON Financial Service Co. Ltd. (TSE:8570) and Sony Corporation (TSE:6758).
Nomura Holdings Inc. (TSE:8604)
T. Rowe Price Japan Fund purchased 656,800 shares of Nomura Holdings in the third quarter when the price averaged $763. It comprises 1.8% of the portfolio.
Nomura Holdings is a financial services group and top Asian-based, global investment bank.
It has grown revenue per share at a rate of 26.7% over the past five years, as book value per share declined at an average annual rate of 7.1%.
The company’s 10-year revenue and net income history:
Nomura has a P/E ratio of 17.6, which is close to a five-year low. It also has a P/B of 1.17 and P/S of 1.52.
Hikari Tsushin Inc. (TSE:9435)
The fund bought 46,900 shares of Hikari Tsushin Inc. in the third quarter when the price averaged $5,952, equal to 1% of the portfolio. Its price at $6720 on Thursday is close to a five-year high.
Hikari Tsushin is a company that sells office automation equipment and telecommunications line services, and plans and sells Internet advertising, mobile phones and insurance.
The company grew per-share revenue by 9.6%, EBITDA by 27.2%, free cash flow by 4.2 and book value by 34% in the past 12 months.
Hikari revenue and earnings history since 2009:
The company has a P/E of 13.8, P/B of 2.2 and P/S of 0.64, which is close to a five-year high.
Takeda Pharmaceutical Co. Ltd. (TSE:4502)
The fund purchased 59,600 shares of Takeda in the third quarter when the price averaged $4,625 per share, equal to 0.99% of the portfolio.
Takeda is a pharmaceutical company in existence for more than 230 years.
In the last five years, it has grown per-share revenue at an annual rate of 1% and book value by 1.6%. Per-share EBITDA declined at an annual rate of 7.2% and free cash flow by 6.4%.
The company’s 10-year revenue and earnings history:
Takeda has a P/E of 51.1, P/B of 1.63 and P/S of 2.37.
AEON Financial Service Co. Ltd. (TSE:8570)
The fund bought 85,700 shares of AEON Financial Service in the third quarter when the price averaged $2,936.
AEON operates in three businesses: credit cards, banking and fees.
In the recent 12 months, the company grew per-share revenue by 13.4% and free cash flow by 20.9% annually. EBITDA per share declined 10%.
AEON’s revenue and earnings history since 2009:
AEON has a P/E of 26.2, P/B of 0.21 and P/S of 2.64.
Sony Corporation (TSE:6758)
The fund purchased 120,800 shares of Sony Corp. in the third quarter when the price averaged ¥2,086 per share, equal to 0.91% of the portfolio.
Sony is an electronics, gaming, entertainment and financial services company.
In the past five years, the company’s per share revenue has declined at an annual rate of 3.6% and book value has declined at a rate of 3.6%. Per share EBITDA increased at an annual rate of 0.4%.
Sony’s 10-year revenue and earnings history:
Sony has a P/E of 38.2, which is close to a two-year low, a P/B of 0.87 and P/S of 0.31, which is close to a two-year high.
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