Earlier this week, the Matthews Pacific Tiger Fund (Trades, Portfolio) released its portfolio update for the second quarter of 2020, which ended on June 30.
The Pacific Tiger Fund seeks sustainable long-term capital appreciation by investing mostly in Asian companies, excluding Japan. It evaluates stocks using a bottom-up, fundamental-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 buys for the quarter were in Alibaba Group Holding Ltd. (HKSE:09988, Financial), Realtek Semiconductor Corp. (TPE:2379, Financial), MediaTek Inc. (TPE:2454, Financial), Kingdee International Software Group Co. Ltd. (HKSE:00268, Financial) and Weichai Power Co. Ltd. (SZSE:000338).
Alibaba
The Matthews Pacific Tiger Fund (Trades, Portfolio) sold 76.06% of its NYSE-listed position in Alibaba Group and used the funds to establish a new investment of 12,961,800 shares in the company under its Hong Kong listing. The trades impacted the equity portfolio by -5.42% and 5.34%, respectively. During the quarter, shares traded for an average price of 202.05 Hong Kong dollars ($26.07).
Alibaba is a Chinese multinational conglomerate with holdings in e-commerce, retail, -nternet and technology assets, among many others. By volume, Alibaba is the largest e-commerce company in the world, with millions of merchants and hundreds of millions of users.
On Aug. 3, shares of Alibaba traded around HK$245.60 for a market cap of HK$5.30 trillion and a price-earnings ratio of 30.32.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. The cash-debt ratio of 2.47 and Altman Z-Score of 7.92 indicate high financial stability. The return on invested capital is higher than the weighted average cost of capital, indicating success in turning investments into profits.
Realtek Semiconductor
The fund invested in 7,610,000 shares of Realtek Semiconductor, impacting the equity portfolio by 1.18%. Shares traded for an average price of 252.99 New Taiwan dollars ($8.62) during the quarter.
Based in Taiwan, Realtek is a fabless semiconductor company that mainly produces products in three categories: communications network ICs, computer peripheral ICs and multimedia ICs.
On Aug. 3, shares of Realtek traded around NT$390 for a market cap of NT$190.28 billion and a price-earnings ratio of 27.36.
GuruFocus gives the company a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. While the cash-debt ratio of 2.18 is about average for the industry, the interest coverage ratio of 37.23 is higher than 62.13% of competitors. The ROIC is more than double the WACC, indicating high profitability.
MediaTek
The fund increased its holding in MediaTek by 3,193,000 shares, or 64.1%, which had a 0.96% impact on the equity portfolio. During the quarter, shares traded for an average price of NT$436.49.
MediaTek is a Taiwanese semiconductor company that focuses on pioneering products for Helio smartphones, automotive, internet of things (IoT) and home entertainment applications.
On Aug. 3, shares of MediaTek traded around NT$696 for a market cap of NT$1.11 trillion and a price-earnings ratio of 43.76.
GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 7 out of 10. The interest coverage ratio of 17.06 is average for the industry, but the Altman Z-Score of 6.34 indicates the company is not in danger of bankruptcy. The company has increased its profitability recently, with the ROIC exceeding the WACC for the past three quarters.
Kingdee International Software
The fund invested in 24,954,000 shares of Kingdee International Software, impacting the equity portfolio by 0.89%. Shares traded for an average price of HK$12.93 during the quarter.
Kingdee Software is an enterprise software company based in Shenzhen, China. It is the leader of its industry in the Asia-Pacific region, providing management software and cloud services to over 7 million customers.
On Aug. 3, shares of Kingdee traded around HK$21.70 for a market cap of HK$71.72 billion and a price-earnings ratio of 172.21.
GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 12.19 and the Altman Z-Score of 18.1 indicate a stable balance sheet. However, the WACC is generally higher than the ROIC, indicating the company may destroy value as it grows unless it can increase its profitability.
Weichai Power
The fund also bought 21,684,069 shares of Weichai Power, impacting the equity portfolio by 0.65%. During the quarter, shares traded for an average price of 13.46 Chinese yuan ($1.93).
Weichai Power is a company that specializes in the research, development and production of diesel engines for vehicles, marine vessels and power generators. It is majority-owned by the government via Weichai Group.
On Aug. 3, shares of Weichai Power traded around 16.99 yuan for a market cap of 132.63 billion yuan and a price-earnings ratio of 14.63.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The Altman Z-Score of 1.74 shows the company could be at risk of bankruptcy without further funding, but the interest coverage ratio of 8.26 and current ratio of 1.2 indicate it can pay its short-term debts. The ROIC is currently lower than the WACC, indicating profitability issues, though the comparison was favorable in 2018 and 2019.
Portfolio overview
As of the quarter’s end, the fund held shares in 54 stocks valued at a total of $6.51 billion. The top holdings were Tencent Holdings Ltd (HKSE:00700) with 7.41% of the equity portfolio, Alibaba with 5.34% and Samsung Electronics Co. Ltd. (XKRX:005930) with 5%.
In terms of sector weighting, the fund was most invested in financial services, consumer defensive and technology.
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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