The Matthews Emerging Markets Small Companies Fund (Trades, Portfolio) released its portfolio for the third quarter earlier this week.
The fund, which is part of San Francisco-based Matthews Asia, is managed by Vivek Tenneeru and Jeremy Sutch. To achieve its objective of long-term capital appreciation, the fund invests in small companies that operate in emerging market countries using a bottom-up, fundamental process.
Keeping these considerations in mind, the fund entered nine new positions during the three months ended Sept. 30, sold out of 13 stocks and added to or reduced a number of other existing holdings. Among its most notable trades were new holdings in Solus Advanced Materials (XKRX:336370, Financial), TCS Group Holding PLC (LSE:TCS, Financial), HEG Ltd. (BOM:509631, Financial), Parque Arauco SA (XSGO:PARAUCO, Financial) and Medlive Technology Co. Ltd. (HKSE:02192, Financial).
Solus Advanced Materials
The fund invested in 102,305 shares of Solus (XKRX:336370, Financial), allocating 1.57% of the equity portfolio to the position. The stock traded for an average price of 61,449.2 won ($51.87) per share during the quarter.
The South Korean company formerly known as Doosan Solus, which manufactures copper foils for a variety of electronic devices and products, has a market cap of 2.5 trillion won; its shares closed at 81,600 won on Tuesday with a price-book ratio of 8.12 and a price-sales ratio of 7.67.
As the company is currently at a loss, there is not enough data to determine a GF Value or a Peter Lynch earnings line. However, GuruFocus estimates the stock has risen over 60% year to date.
GuruFocus rated Solus’ financial strength 5 out of 10. Although the company has low interest coverage, the Altman Z-Score of 4.66 indicates it is in good standing. The return on invested capital, however, is being overshadowed by the weighted average cost of capital, indicating it struggles to create value while growing.
The company’s profitability scored a 3 out of 10 rating on the back of weak margins and negative returns on equity, assets and capital that underperform a majority of competitors.
Matthews holds 0.33% of Solus’ outstanding shares.
TCS Group
The Emerging Markets Small Companies Fund picked up 58,618 shares of TCS Group (LSE:TCS, Financial), dedicating 1.38% of the equity portfolio to the holding. Shares traded for an average price of $90.64 each during the quarter.
The Cyprus-based company, which provides online financial services in Russia, has a $21.85 billion market cap; its shares closed at $109.65 on Tuesday with a price-earnings ratio of 29.91, a price-book ratio of 10.97 and a price-sales ratio of 9.49.
Taking historical ratios, past performance and future earnings projections into account, the GF Value Line suggests the stock is significantly overvalued currently.
TCS Group’s financial strength was rated 3 out of 10 by GuruFocus. Despite issuing new long-term debt over the past three years, it is manageable due to a comfortable level of interest coverage.
The company’s profitability fared better with a 6 out of 10 rating, driven by margins and returns that top a majority of industry peers and a moderate Piotroski F-Score of 5 out of 9, meanings operations are typical of a stable company. Despite recording a slowdown in revenue per share growth over the past 12 months, TCS has a predictability rank of 4.5 out of five stars. According to GuruFocus, companies with this rank return an average of 10.6% annually over a 10-year period.
Catherine Wood (Trades, Portfolio) is the company’s largest guru shareholder with 0.42% of its outstanding shares.
HEG
The fund entered a 161,336-share holding of HEG (BOM:509631, Financial), giving it 1.26% space in the equity portfolio. During the quarter, the stock traded for an average per-share price of 2,244.76 rupees ($30.10).
The Indian company, which manufactures carbon and graphite products, has a market cap of 77.74 billion rupees; its shares closed at 2,014.35 rupees on Tuesday with a price-earnings ratio of 317.22, a price-book ratio of 2.22 and a price-sales ratio of 5.46.
According to the GF Value Line, the stock is significantly overvalued currently.
GuruFocus rated HEG’s financial strength 6 out of 10 on the back of a robust Altman Z-Score of 8.23 and good debt-related ratios.
The company’s profitability also fared well, scoring a 7 out of 10 rating even though its margins and returns underperform a majority of competitors. HEG is supported by a moderate Piotroski F-Score of 6 and, despite seeing a decline in revenue per share in recent years, a one-star predictability rank. GuruFocus says companies with this rank return an average of 1.1% annually.
The fund holds 0.42% of HEG’s outstanding shares.
Parque Arauco
Matthews established a 4.13 million-share stake in Parque Arauco (XSGO:PARAUCO, Financial), expanding the equity portfolio by 1.09%. The stock traded for an average price of 944.88 Chilean pesos ($1.16) per share during the quarter.
The Chilean owner and operator of shopping malls has a market cap of 1.6 trillion pesos; its shares closed at 825.90 pesos on Tuesday with a price-book ratio of 0.76.
Medlive Technology
The fund acquired 609,500 shares of Medlive Technology (HKSE:02192, Financial), which had an impact of 0.76% on the equity portfolio. During the quarter, shares traded for an average price of 32.81 Hong Kong dollars ($4.21) each.
The Chinese company, which operates an online platform for physicians that provides medical information, clinical guidelines and other information, has a HK$29.96 billion market cap; its shares were trading around HK$40.75 on Wednesday with a price-book ratio of 138.04 and a price-sales ratio of 115.85.
Based on the price chart, the stock appears to have gained more than 30% since its initial public offering in July.
Boosted by a comfortable level of interest coverage and a robust Altman Z-Score of 196.27, Medlive’s financial strength was rated 7 out of 10 by GuruFocus.
The company’s profitability scored a 5 out of 10 rating on the back of a high Piotroski F-Score of 8, meaning operations are healthy.
Matthews holds 0.09% of Medlive’s outstanding shares.
Additional trades and portfolio performance
The fund also entered positions in Bandhan Bank Ltd. (BOM:541153, Financial), YDUQS Participacoes SA (BSP:YDUQ3, Financial), Xtep International Holdings Ltd. (HKSE:01368, Financial) and Network International Holdings PLC (LSE:NETW, Financial) during the quarter.
A majority of the $387 million equity portfolio, which is composed of 66 stocks, is invested in the industrials, technology and financial services sectors.
In 2020, Matthews’ fund returned 43.68%, topping the MSCI All Country Asia ex Japan Small Cap Index’s 26.6% return.
