The T. Rowe Price Japan Fund (Trades, Portfolio) disclosed three new positions when it released its first-quarter portfolio earlier this month.
Managed by Archibald Ciganer, the fund is part of Baltimore-based asset management firm T. Rowe Price Group. In order to achieve long-term capital growth, the fund invests in Japanese companies that have a leading market position, experienced management teams and are capable of maintaining above-average, long-term earnings and cash flow growth.
Keeping these criteria in mind, the fund established holdings in FANCL Corp. TSE:4921, Oriental Land Co. Ltd. TSE:4661 and Net One Systems Co. Ltd. TSE:7518 during the quarter.
FANCL
The Japan Fund invested in 324,200 shares of FANCL, allocating 1.01% of the equity portfolio to the position. The stock traded for an average price of 2,826.26 yen ($26.30) per share during the quarter.
The cosmetics company, which also manufactures dietary supplements, has a market cap of 307.45 billion yen; its shares closed at 2,563 yen on Wednesday with a price-earnings ratio of 30.85, a price-book ratio of 4.7 and a price-sales ratio of 2.45.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 also supports this assessment.
GuruFocus rated FANCL’s financial strength 9 out of 10 on the back of a high cash-debt ratio of 2.62, comfortable interest coverage and a robust Altman Z-Score of 10.23, which indicates it is in good standing.
The company’s profitability scored a 7 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 operations are stable. FANCL also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically return 1.1% per annum over a 10-year period.
The fund holds 0.27% of the company’s outstanding shares.
Oriental Land
T. Rowe Price picked up 45,600 shares of Oriental Land, dedicating 0.81% of the equity portfolio to the holding. During the quarter, shares traded for an average price of 14,202 yen each.
The leisure and tourism company, which owns the Tokyo Disney Resort, has a market cap of 4.69 trillion yen; its shares closed at 14,300 yen on Wednesday with a price-earnings ratio of 55.65, a price-book ratio of 5.64 and a price-sales ratio of 9.36.
According to the Peter Lynch chart, the stock is overvalued.
Oriental Land’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. The company is supported by comfortable interest coverage and a robust Altman Z-Score of 14.08.
While the company is also bolstered by an expanding operating margin and strong returns that outperform a majority of industry peers, it has a low Piotroski F-Score of 1, which implies business conditions are in poor shape. Due to a slowdown in revenue per share growth over the past 12 months, Oriental Land’s four-star business predictability rank is on watch. GuruFocus says companies with this rank typically return 9.8% per year.
The Japan Funds holds 0.01% of the company’s outstanding shares.
Net One Systems
The fund purchased 218,300 shares of Net One Systems, expanding the equity portfolio by 0.64%. During the quarter, the stock traded for an aver per-share price of 2,294.85 yen.
The information technology services company has a market cap of 219.3 billion yen; its shares closed at 2,589 yen on Wednesday with a price-earnings ratio of 16.46, a price-book ratio of 3.57 and a price-sales ratio of 1.17.
Based on the Peter Lynch chart, the stock appears to be trading near its fair value.
GuruFocus rated Net One’s financial strength 8 out of 10, driven by comfortable interest coverage and a high Altman Z-Score of 5.01.
The company’s profitability scored a 7 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 4. Net One also has a one-star business predictability rank.
With a 2.82% stake, the Matthews Japan Fund (Trades, Portfolio) is the company’s largest guru shareholder. T. Rowe Price holds 0.26% of its outstanding shares.
Additional trades and portfolio performance
The Japan Fund also added to several of its other positions during the quarter, including Miura Co. Ltd. TSE:6005, Chugai Pharmaceutical Co. Ltd. TSE:4519, Keyence Corp. (TSE:6861), Nippon Telegraph & Telephone Corp. (TSE:9432) and SotfBank Group Corp. (TSE:9984).
The $714 million equity portfolio, which is composed of 73 stocks, is largely invested in the industrials sector, followed by smaller holdings in the health care and communication services spaces.
The fund posted a return of 26.5% in 2019.
Disclosure: No positions.
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