Earlier this week, the Matthews Pacific Tiger Fund (Trades, Portfolio) released its portfolio update for the fourth quarter of 2019. In addition to selling out of its positions in iQIYI Inc. (IQ), LINE Corp. (LN) and AmorePacific Corp. (XKRX:090430), the fund established new positions in Taiwan Semiconductor Manufacturing Co. Ltd. (TPE:2330, Financial), Synnex Technology International Corp. (TPE:2347, Financial), Midea Group Co. Ltd. (SZSE:000333, Financial) and WuXi Biologics (Cayman) Inc. (HKSE:02269, Financial).
The Matthews Pacific Tiger Fund (Trades, Portfolio) seeks sustainable long-term capital appreciation by investing mostly in Asian companies, excluding Japan. The fund is managed by Sharat Shroff, Rahul Gupta, Raymond Deng and Inbok Song. As of Feb. 5, the equity portfolio is valued at $8.7 billion.
At quarter’s end, the fund’s top holdings were Alibaba (BABA) at 5.5%, NAVER Corp. (XKRX:035420) at 4.57% and China Resources Land (HKSE:01109) at 4.4%. In terms of sector weighting, the fund is most invested in financial services, consumer defensive and communication services.
Taiwan Semiconductor Manufacturing
The Pacific Tiger Fund invested in 8,292,000 shares of Taiwan Semiconductor, impacting the equity portfolio by 1.05%. Shares were trading at an average price of 307.92 New Taiwan dollars (approximately $10.25) during the quarter. The fund has invested in Taiwan Semiconductor twice in the past, selling out for a modest profit both times.
Headquartered in Hsinchu, Taiwan, Taiwan Semiconductor is the world’s largest independent semiconductor producer. It derives most of its profits from smartphone components, though its internet of things products have seen increasing sales in recent years. As of Feb. 5, shares trade at NT$325 apiece for a market cap of NT$8.43 billion.
The stock has a price-earnings ratio of 24.71, a cash-debt ratio of 4.79 and a three-year revenue growth rate of 6.9%. GuruFocus has assigned it a financial strength score of 8 out of 10 and a profitability score of 10 out of 10. According to the Peter Lynch chart, shares are trading above their intrinsic value.
With 5G technology expanding, the demand for semiconductors is expected to explode, especially since 5G will be more hardware-heavy than previous generations of wireless technology due to the fact that each individual signal will have a shorter range.
Synnex Technology International
After selling out of Synnex Technology in the second quarter of 2019, the fund has established a new stake of 36,359,921 shares, impacting the equity portfolio by 0.52%. Shares were trading at an average price of NT$36.93 during the quarter.
Synnex Technology International is a Taiwan-based company that sells computer, communication and consumer products, while also providing maintenance services. It is the largest distributor of information, communication and semiconductor products in the Asia-Pacific region, serving as the main pipeline of supplies to high-tech companies in its main areas of operation. As of Feb. 5, shares traded at NT$37.7 apiece for a market cap of NT$62.21 billion.
The stock has a price-earnings ratio of 10.03, a cash-debt ratio of 0.43 and a three-year revenue growth rate of 6.0%. GuruFocus has assigned it a financial strength rating of 6 out of 10 and a profitability rating of 6 out of 10. According to the Peter Lynch chart, the stock is trading significantly below its intrinsic value.
Synnex’s products appear in over 300 leading tech brands worldwide, including Apple (AAPL), Microsoft (MSFT), Intel (INTC) and Autodesk (ADSK). Despite is overall profitability, the company has an operating margin of 1.84% and a net margin of 1.80%. Its return on capital is also on the low end of the spectrum at 13.57%. Regardless of its low margins, though, the company has seen steady (if slow) growth during its history, and like Taiwan Semiconductor, it is also poised to profit from the distribution of 5G hardware.
Midea Group
The fund established a new position of 5,349,743 shares in Midea Group, impacting the equity portfolio by 0.52%. During the quarter, shares were trading at an average price of 55.75 Chinese yuan (approximately $7.99).
Midea Group is a Guangdong, China-based manufacturer of electrical appliances. It is China’s leading producer of residential and commercial HVAC solutions, logistics products and components for research facilities. It is also prominent in industrial robotics automation and internet of things applications. As of Feb. 5, shares traded at 52.81 yuan apiece for a market cap of 368.44 billion yuan.
The company has a price-earnings ratio of 14.88, a cash-debt ratio of 1.23 and a three-year revenue growth rate of 21.8%. GuruFocus has assigned it a financial strength score of 6 out of 10 and a profitability score of 8 out of 10. Share prices have mostly followed the most recent earnings reports in the past.
As a large diversified tech player in the developing Chinese economy, Midea has plenty of room to grow. HVAC and home appliances have not yet reached full market saturation in many Asia-Pacific countries, and the company’s industrial automation and IoT products are also poised for growth as producers increasingly seek to automate their pipelines.
WuXi Biologics (Cayman)
The fund also made a new investment in WuXi Biologics, buying 2,817,000 shares. The trade impacted the equity portfolio by 0.41%. During the quarter, shares traded at an average price of 88.4 Hong Kong dollars (approximately $11.39).
WuXi Biologics is an open-access platform for biologics drug development. Headquartered in WuXi, China, the company is the first Chinese biologics company to be approved by both the U.S. Food and Drug Administration and the European Medicines Agency. Its platforms include custom protein generation, microbial-derived products and antibody drug conjugates. As of Feb. 5, shares traded at HK$103.1 apiece for a market cap of HK$132.86 billion.
The company has a price-earnings ratio of 143.2, a cash-debt ratio of 12.24 and a three-year revenue growth rate of 54.9%. GuruFocus has assigned it a financial strength rating of 9 out of 10 and a profitability rating of 6 out of 10.
In essence, WuXi Biologics is a pick-and-shovel business for Chinese biotech companies. It provides platforms and expert advisors so that its clients can take their drugs through discovery, development, testing, approval and production. It also provides registration, clinical trial and marketing authorization assistance to foreign companies that want to sell biologics in China.
Disclosure: Author owns no shares in any of the stocks mentioned.
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