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Margaret Moran
Margaret Moran
Articles (236) 

Matthews Pacific Tiger Fund’s Biggest 1st-Quarter Buys

The fund’s top new picks have high financial strength

Earlier this week, the Matthews Pacific Tiger Fund (Trades, Portfolio) released its portfolio update for the first quarter of 2020. The reported quarter for the fund ended on March 31.

The Matthews Pacific Tiger Fund (Trades, Portfolio) seeks sustainable long-term capital appreciation by investing mostly in Asian companies, excluding Japan. It evaluates stocks using a bottom-up, fundamentals-based approach with a focus on long-term results. The fund is managed by Sharat Shroff, Raymond Deng and Inbok Song.

Based on its investment criteria, the fund’s biggest new buys for the quarter were China International Travel Service Corp. Ltd. (SHSE:601888), ENN Energy Holdings Ltd. (HKSE:02688), Jiangsu Hengrui Medicine Co. Ltd. (SHSE:600276) and MediaTek Inc. (TPE:2454).

China International Travel Service

The Matthews Pacific Tiger Fund (Trades, Portfolio) established a stake of 8,804,078 shares in China International Travel Service, impacting the equity portfolio by 1.34%. During the quarter, shares traded for an average price of 81.60 Chinese yuan ($11.55).

China International Travel Service is a Chinese travel agency company that provides all-inclusive tour services. It has been a leading company in the Chinese travel industry since 1954.

On May 4, shares of China International Travel Service traded around 91.30 yuan apiece for a market cap of 169.43 billion yuan and a price-earnings ratio of 80.94. The Peter Lynch chart suggests that the stock trades slightly higher than its historical median valuation.

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GuruFocus gives the company a financial strength rating of 8 out of 10, a profitability rating of 10 out of 10 and a business predictability rating of five out of five starts.

The cash-debt ratio of 48.58 and interest coverage ratio of 268.86 suggest there is plenty of liquidity to meet debt obligations, while the Altman Z-Score of 16.19 indicates that the company is not in danger of bankruptcy.

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The operating margin of 8.65% is average for the industry. The return on invested capital is more than five times the weighted average cost of capital, suggesting high profitability.

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ENN Energy Holding

The fund purchased 7,155,000 shares of ENN Energy Holdings, which had a 1.13% impact on the equity portfolio. Shares traded for an average price of 85.76 Hong Kong dollars ($11.06) during the quarter.

ENN Energy Holdings is one of China’s largest clean energy distributors and operates as part of private energy company ENN Group. The company invests in, operates and manages natural gas pipelines in China.

On May 4, shares of ENN Energy Holdings traded around HK$84.70 for a market cap of HK$115.02 billion and a price-earnings ratio of 14.94. According to the Peter Lynch chart, the stock is trading near its intrinsic value.

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The company has a GuruFocus financial strength rating of 5 out of 10, a profitability rating of 9 out of 10 and a business predictability rating of four out of five stars.

The cash-debt ratio of 0.39 is higher than 60.89% of competitors, while the Altman Z-Score of 2.14 suggests that the company is safe from bankruptcy. However, the current ratio of 0.62 indicates a weak short-term cash position.

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In terms of profitability, the company has seen both revenue and net income increase in recent years. The operating margin of 10.25% is average for the industry, while the return on capital of 26.36% is higher than 79.64% of competitors.

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Jiangsu Hengrui Medicine

The fund also established a new position worth 4,504,417 shares in Jiangsu Hengrui Medicine, impacting the equity portfolio by 0.94%. During the quarter, shares traded for an average price of 87.79 yuan.

Founded in 1970, Jiangsu Hengrui Medicine is a Chinese pharmaceutical company with a focus on the research, development and manufacturing of antineoplastic drugs, angiomyocardiac drugs, drugs for surgery, contrast agents and antibiotics.

On May 4, shares of Jiangsu Hengrui Medicine traded around 93 yuan for a market cap of 396.42 billion yuan and a price-earnings ratio of 76.23. The Peter Lynch chart suggests that the stock is overvalued.

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GuruFocus gives the company a financial strength rating of 10 out of 10, a profitability rating of 10 out of 10 and a business predictability rating of five out of five stars.

The company has no debt and an Altman Z-Score of 88.4, suggesting extremely low debt risk. The cash position on the balance sheet has also increased in recent years.

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The operating margin of 24.47% is higher than 89.13% of competitors. The company’s revenue and net income have grown steadily throughout its history as a publicly traded entity.

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MediaTek

The fund bought 4,981,000 shares of MediaTex Inc., which had a 0.87% impact on the equity portfolio. Shares traded for an average price of 382.80 New Taiwan dollars ($12.84) during the quarter.

MediaTek is a Taiwan-based fabless semiconductor company. It manufactures chips for wireless, HDTV, handheld devices and consumer media products, as well as provides digital subscriber line services and optical disk drives. The company also operates in the automotive and internet of things (IoT) spaces.

On May 4, shares of MediaTek traded around NT$399.50 for a market cap of NT$520.7 billion and a price-earnings ratio of 28.5. According to the Peter Lynch chart, the stock is overvalued compared to recent earnings.

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The company has a GuruFocus financial strength rating of 7 out of 10, a profitability rating of 8 out of 10 and a business predictability rating of one out of five stars.

The cash-debt ratio of 3.26 is higher than 62.97% of competitors, and the current ratio of 2.03 also suggests a stable cash position. The Altman Z-Score is 4.23, indicating that the company is unlikely to go bankrupt.

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The operating margin of 9.16% is higher than the industry median of 5.6%, and the ROIC is higher than the WACC. However, margins have contracted over the years, and the company has a three-year revenue decline rate of 4%.

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Portfolio overview

At quarter’s end, the fund held shares of 53 stocks for an equity portfolio valued at $6.12 billion. Its top holdings were Alibaba (BABA) at 7.13%, Tencent Holdings Ltd. (HKSE:00700) at 6.08% and China Resources Land (HKSE:01109) at 4.91%. In terms of sector weighting, the fund was most invested in financial services, consumer defensive and consumer cyclical.

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In addition to the buys listed above, the fund established new positions in Topsports International Holdings Ltd. (HKSE:06110), Hanon Systems (XKRX:018880) and NCsoft Corp. (XKRX:036570). Go here for a full list of the fund’s trades for the quarter.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.

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