The Matthews Asia Small Companies Fund (Trades, Portfolio), part of San Francisco-based investment firm Matthews International Capital Management, disclosed 18 new positions in its third-quarter portfolio, which was released earlier this week.
Managed by Lydia So, Beini Zhou and Tiffany Hsiao, 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.
Based on these criteria, the fund’s top five buys for the quarter were Chroma Ate Inc. (TPE:2360, Financial), Chunbo Co. Ltd. (XKRX:278280, Financial), Joyoung Co. Ltd. (SZSE:002242, Financial), Mobvista Inc. (HKSE:01860, Financial) and Jiajiayue Group Co. Ltd. (SHSE:603708).
Chroma Ate
The fund invested in 493,000 shares of Chroma Ate, dedicating 1.37% of the equity portfolio to the holding. The stock traded for an average price of 148 New Taiwan dollars ($4.87) per share during the quarter.
The Taiwanese company, which is a leading provider of precision and automated testing systems, signal generators and power supplies, has a NT$58.4 billion market cap; its shares closed at NT$140.50 on Wednesday with a price-earnings ratio of 31.6, a price-book ratio of 4.32 and a price-sales ratio of 4.25.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Chroma Ate’s financial strength 7 out of 10. Despite the company issuing approximately NT$2.1 billion in new long-term debt over the past two years, it is at a manageable level due to comfortable interest coverage. In addition, the Altman Z-Score of 4.39 indicates the company is in good financial standing.
The company’s profitability scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4, which implies business conditions are stable. Chroma Ate’s business predictability rank of one out of five stars, however, is on watch as a result of revenue per share declining over the past 12 months. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
The Small Companies Fund holds 0.12% of the company’s outstanding shares.
Chunbo
Matthews picked up 39,000 shares of Chunbo, allocating 1.26% of the equity portfolio to the position. During the quarter, the stock traded for an average per-share price of 69,245.5 won ($59.96).
The South Korean chemical company has a market cap of 634 billion won; its shares closed at 63,400 won on Wednesday with a price-earnings ratio of 20.21, a price-book ratio of 3.21 and a price-sales ratio of 4.12.
According to the Peter Lynch chart, the stock is overvalued.
Chunbo’s financial strength was rated 9.4 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 20.74.
The company’s profitability did not fare as well, scoring a 3 out of 10 rating despite having strong margins and returns that outperform a majority of industry peers.
The fund holds 0.39% of the company’s outstanding shares.Â
Joyoung
The Small Companies Fund established a 601,402-share holding of Joyoung, giving it 1.08% space in the equity portfolio. Shares traded for an average price of 21.57 yuan ($3.09) during the quarter.
The Chinese manufacturer of home-use soybean milk machines has a market cap of 19.26 billion yuan; its shares closed at 25.1 yuan on Wednesday with a price-earnings ratio of 23.68, a price-book ratio of 5.38 and a price-sales ratio of 2.11.
Based on the Peter Lynch chart, the stock appears to be overvalued.
As a result of having no long-term debt, GuruFocus rated Joyoung’s financial strength 9 out of 10. In addition, the company has a high Piotroski F-Score of 6.74.
The company’s profitability scored an 8 out of 10 rating. Although the operating margin is in decline, Joyoung is supported by strong margins and returns as well as a high Piotroski F-Score of 7, which suggests business conditions are healthy. It also has a one-star business predictability rank.
The fund holds 0.08% of the company’s outstanding shares.Â
Mobvista
The portfolio managers invested in 3.6 million shares of Mobvista, expanding the equity portfolio by 1.07%. The stock traded for an average price of 3.76 Hong Kong dollars (48 cents) per share during the quarter.
The Chinese company, which provides mobile advertising and analytics services to app developers, has a HK$5.86 billion market cap; its shares closed at HK$3.82 on Wednesday with a price-earnings ratio of 38.2, a price-book ratio of 2.83 and a price-sales ratio of 1.33.
The Peter Lynch chart suggests the stock is overvalued.
Mobvista’s financial strength was rated 8.1 out of 10 by GuruFocus. Although the company has issued approximately $300.7 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. In addition, it has a high Altman Z-Score of 4.2 despite having poor earnings quality.
The company’s profitability scored a 4 out of 10 rating, driven by a moderate Piotroski F-Score of 6 and returns that outperform over half of its competitors.
Matthews holds 0.24% of Mobvista’s outstanding shares.Â
Jiajiayue Group
The fund invested in 486,455 shares of Jiajiayue Group. The trade had an impact of 1.06% on the equity portfolio. During the quarter, the stock traded for an average per-share price of 24.11 yuan.
The Chinese supermarket chain has a market cap of 15.34 billion yuan; its shares closed at 25.21 yuan on Wednesday with a price-earnings ratio of 31.92, a price-book ratio of 5.33 and a price-sales ratio of 1.06.
According to the Peter Lynch chart, the stock is overvalued.
GuruFocus rated Jiajiayue’s financial strength 5 out of 10 on the back of a high cash-debt ratio of 15.31. The company has also recorded a decline in revenue per share over the last three years.
The company’s profitability fared better with a 7 out of 10 rating, which was bolstered by an expanding operating margin, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 7.
The Asia Small Companies Fund holds 0.08% of Jiajiayue’s outstanding shares.Â
Additional trades
During the quarter, the Asia Small Companies Fund also established positions in Sunonwealth Electric Machine Industry Co. Ltd. (TPE:2421), Global Unichip Corp. (TPE:3443), Centre Testing International Group Co. Ltd. (SZSE:300012), Hua Hong Semiconductor Ltd. (HKSE:01347) and MM Forgings Ltd. (BOM:522241), among others.
The fund’s $170 million equity portfolio, which is composed of 77 stocks, is heavily invested in the technology sector, followed by smaller positions in the consumer cyclical, health care and industrials spaces.
According to its fact sheet, the fund posted an -18.05% return in 2018, outperforming the benchmark by a slim margin. The MSCI All Country Asia ex. Japan Small Cap Index recorded a return of -18.63%.
Disclosure: No positions.
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