Earlier this week, the Matthews Japan Fund (Trades, Portfolio) released its portfolio update for the first quarter of 2021, which ended on March 31.
The Matthews Japan Fund (Trades, Portfolio) seeks sustainable long-term capital appreciation by investing at least 80% of its assets in Japan-listed common and preferred stocks. It evaluates stocks using a bottom-up, fundamentals-based approach with a focus on long-term results. The fund is managed by Taizo Ishida and Shuntaro Takeuchi.
Based on its investment criteria, the fund's biggest new buys for the quarter were Fanuc Corp. (TSE:6954, Financial), Sumitomo Mitsui Financial Group Inc. (TSE:8316, Financial), Toyota Industries Corp. (TSE:6201, Financial) and AGC Inc. (TSE:5201, Financial).
Fanuc
The fund established a new holding of 192,700 shares in Fanuc (TSE:6954, Financial) after selling out of its previous investment in the company in the third quarter of 2015. The trade had a 2.98% impact on the equity portfolio. During the quarter, shares traded for an average price of 27,079.60 Japanese yen ($249.30).
Fanuc is a leading group of robotics companies that supplies automation products for manufacturing, including robotics, CNCs and Motion Control and ROBOMACHINE machining centers. It is headquartered in Oshino, Yamanashi.
On May 7, shares of Fanuc traded around 26,500.00 yen for a market cap of 4.97 trillion yem and a price-earnings ratio of 69.61. According to the GuruFocus Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 10 out of 10 and a profitability rating of 7 out of 10. It has no debt and a Piotroski F-Score of 6 out of 9, which indicates financial stability. The return on invested capital has been in a downtrend over the past few years and dropped below the weighted average cost of capital in recent quarters, indicating struggles with profitability.
Sumitomo Mitsui Financial Group
The fund took a 1,215,700-share stake in Sumitomo Mitsui Financial Group (TSE:8316, Financial) after selling out of its previous investment in the company during the second quarter of 2018. The trade had a 2.84% impact on the equity portfolio. Shares traded for an average price of 3,684.59 yen during the quarter.
Based in Chiyoda City, Tokyo, Sumitomo Mitsui is a commercial bank holding company that manages a group of banking subsidiaries and other financial services companies. It operates worldwide in the retail, corporate and investment banking sectors.
On May 7, shares of Sumitomo Mitsui traded around 3,953.00 yen for a market cap of 5.39 trillion yen and a price-earnings ratio of 14. According to the GF Value chart, the stock is a possible value trap because of its choppy corporate structure history and a price that is too far below its intrinsic value estimate.
The company has a financial strength rating of 3 out of 10 and a profitability rating of 2 out of 10. The cash-debt ratio of 2.3 and Piotroski F-Score of 4 out of 9 indicate a stable financial situation. The return on equity of 1.81% and return on assets of 0.10% are underperforming their respective industry medians of 8.23% and 0.82%.
Toyota Industries
The fund invested in 437,200 shares of Toyota Industries (TSE:6201, Financial), impacting the equity portfolio by 2.52%. During the quarter, shares traded for an average price of 9,214.38 yen.
Founded in 1926 as an automatic loom manufacturer, Toyota Industries has since evolved into a manufacturer of a variety of machine products, many of which are recognized around the world. Its products include forklifts, automobiles, engines, air-conditioning compressors and material handling equipment.
On May 7, shares of Toyota Industries traded around 9,000.00 yen for a market cap of 2.83 trillion yen and a price-earnings ratio of 22.38. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.48 indicates the company could face liquidity issues, but the Piotroski-F-Score is of 5 out of 9 is typical of a stable company. The three-year revenue growth rate is 9.2%, while the three-year Ebitda growth rate is 6.8%.
AGC
The fund also picked up a new position in AGC (TSE:5201, Financial) worth 765,500 shares, impacting the equity portfolio by 2.07%. Shares traded for an average price of 3,963.91 yen during the quarter.
AGC, formerly branded Asahi Glass Co. Ltd., is a cutting-edge global glass manufacturing company based in Tokyo. It produces flat, automotive and display glass, as well as various chemicals, ceramics and other high-tech materials and components.
On May 7, shares of AGC traded around 5,090.00 yen for a market cap of 4.97 trillion yen and a price-earnings ratio of 69.61. According to the GF Value chart, the stock is significantly overvalued.
The company has a financial strength rating of 5 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 0.3 is lower than 72% of industry competitors, but the interest coverage ratio of 8.86% indicates the company can keep paying its debts in the near term. The operating margin and net margin have been on a general downtrend over the past decade, but have increased recently to their present values of 8.74% and 4.81%.
Portfolio overview
As of the quarter's end, the fund held shares in 46 stocks valued at a total of $1.55 billion. The fund established seven new positions during the quarter, sold out of 10 stocks and added to or reduced several other positions for a turnover of 21%.
The top holdings were Shin-Etsu Chemical Co. Ltd. (TSE:4063, Financial) with 5.73% of the equity portfolio, Sony Group Corp. (TSE:6758) with 5.36% and Recruit Holdings Co. Ltd. (TSE:6098) with 3.85%. In terms of sector weighting, the fund was most invested in technology, health care and industrials.
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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