The Matthews Pacific Tiger Fund (Trades, Portfolio) was formed in April 2010 and currently has more than $378 million in assets under management. Its geographic focus includes all developed and emerging markets in Asia, excluding Japan, to which Matthews Pacific devotes a separate fund.
Financial stocks is the largest sector represented in the fund at 25.5%, followed by consumer staples at 21.1% and information technology at 16.1%. The top three countries represented in the portfolio are China and Hong Kong at 27.1%, India at 19.8% and South Korea at 17.4%.
Sharat Sroff is the lead portfolio manager, and also co-manages the India, Asia Growth and Asia Focus strategies. He joined Matthews Pacific in 2005 as a research analyst, and previously worked in the San Francisco and Hong Kong offices of Morgan Stanley.
The benchmark MSCI All Country Asia ex Japan Index has struggled over the past three months, posting -1.54% return, while the Tiger Fund returned 1.58%. The Tiger Fund has consistently outperformed the index for the past one and three-year periods.
The following are the changes to the portfolio for the third quarter:
Buys
The fund purchased a new holding in Chinese e-commerce giant Alibaba of 392,600 shares at $89.95 per share.
Yesterday, Alibaba released its first quarterly earnings report since its IPO, revealing revenue had grown more than 50%, and the number of active users had grown 52% to 307 million. However, the company’s costs are rising as it continues to make investments to attract more users. Sales and marketing expenses increased to 10.4% of revenue, while general and administrative costs increased to 11.6% of revenue, up from 7.2% in the year-ago quarter.
MegaStudy Co (XKRX:072870, Financial)
The Tiger Fund purchased 76,412 shares of MegaStudy at an average price of SK$63679.03 per share. The fund had held shares in the company from the first quarter 2010, but sold out in the first quarter 2014.
MegaStudy is an education company that provides online education and home-school materials, as well as consulting for private institutes. MegaStudy’s stock has been down 21% since the beginning of the year, but compared to its Peter Lynch earnings line, it appears the company recently became slightly undervalued.
The company holds no long-term debt; total current assets for the latest quarter were SK$128,569 million, which covers the total current liabilities of SK$52,748 million. The P/E ratio for the trailing 12 months is 11.6, which is near the company’s 10-year low of 7.47.
Adds
The Tiger Fund added to its positions in eight companies during the third quarter, the largest impact to the portfolio was in Hengan International Group (HKSE:01044, Financial). The fund added 4,502,000 shares for a total of 16,658,500.
Hengan is China’s largest manufacturer of household tissue products, feminine sanitary napkins and baby diapers. Its products are sold in China, Hong Kong, and certain overseas markets.
GuruFocus ranks Hengan’s business predictability as 4.5 stars, due to the company’s consistent revenue per share growth.
The company’s dividend yield is 2.3%, which is near its five-year high. The dividend’s five-year growth rate is 17.5%, higher than 89% of the companies in the household and personal products industry.
The Matthews China Fund (Trades, Portfolio), Yacktman Fund (Trades, Portfolio), and Yacktman Focused Fund (Trades, Portfolio) also hold positions in Hengan International.
The fund also added to its positions in Orion Corp (XKRX:001800), DKSH Holding (XSWX:DKSH), Tata Power (NSE:TATAPOWER), Kasikornbank Public Co (KPCUF, Financial), Dairy Farm International Holdings (SGX:D01), Sinopharm Group Co (HKSE:01099), and Public Bank (XKLS:1295).
Sells
The fund reduced its positions in three companies; the largest impact to the portfolio was AmorePacific Corp (XKRX:090430, Financial) when the fund sold 49,330 shares, reducing its stake by 22.3%.
The fund has unloaded its shares of AmorePacific at about double the price of the average cost of purchased shares.
AmorePacific is a South Korean company that manufactures and markets cosmetics, skin care products, living goods, and health foods. Its products can be found in high-end American retailers such as Nordstrom (JWN), Neiman Marcus, and Sephora.
The company’s stock has risen a staggering 136% year-to-date. AmorePacific holds no long-term debt, and its total current assets easily covers total current liabilities at SK$802,571 million and SK$355,625 million, respectively.
However, its current P/S ratio is 4.84, which is near the 10-year high. The current industry median is 1.08.
The Tiger Fund also reduced its positions in Delta Electronics (TPE:2308) and Perusahaan Gas Negara (ISX:PGAS).
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