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James Li
James Li
Articles (227)  | Author's Website |

Matthews China Fund Seeks Gains in Tech Sector

Fund manager invests in 4 tech positions in 1st quarter

Andrew Mattock, lead portfolio manager of the Matthews China Fund (Trades, Portfolio), seeks long-term capital appreciation through investments in Chinese companies with sustainable growth possibilities. The fund added four technology positions during the first quarter: Midea Group Co. Ltd. (SZSE:000333), ZTE Corp. (HKSE:00763), China Unicom (Hong Kong) Ltd. (HKSE:00762)(NYSE:CHU) and Chinasoft International Ltd. (HKSE:00354).

Midea Group

Mattock invested in 2,146,696 shares of Midea Group, a household electronics company engaged in the manufacturing of air conditioners, refrigerators and washing machines. The company’s share price averaged 31.32 Chinese yuan ($4.55) during the quarter. Mattock increased his portfolio 1.83% with this transaction.

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Midea Group reported revenues of 159.8 billion yuan and net profits of 15.9 billion yuan in 2016, outperforming 2015 results by 15% and 16%. According to the company’s annual report, Midea made strong progress in company efficiency and asset structure, both contributing to higher market value. The company paid 6.5 billion yuan in dividends during the year.

Despite poor Piotroski F-scores, Midea Group’s operating margin is near a 10-year high and outperforms 81% of global consumer electronics companies.

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ZTE

Mattock added 3.96 million shares of ZTE Corp. at an average price of 12.86 Hong Kong dollars ($1.65). With this transaction, the fund manager increased his portfolio 1.28%.

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ZTE offers modest growth potential as its financial strength and profitability both rank 5 out of 10. The company’s Piotroski F-score ranks a weak 2 out of 9, which usually implies poor business operation. Despite this, the telecommunication equipment company reported a 17.78% year-over-year increase in operating revenue and a 27.81% year-over-year increase in net profit attributable to shareholders according to its first-quarter report. These results contributed to an operating margin of 1.54%.

China Unicom

Mattock added 4.634 million shares of China Unicom, one of the largest Chinese wireless companies. The company’s share price averaged 9.45 Hong Kong dollars during the quarter.

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Although the company’s profitability ranks 6 out of 10, China Unicom has four severe warning signs, including declining operating margins and revenue per share. The company’s revenue and gross profit steadily decreased since 2014.

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Despite low financial strength and profitability, China Unicom has a strong Piotroski F-score of 7, driven by higher share buybacks and increasing gross margins during the past five quarters. The company’s three-year share buyback ratio and gross margin outperform 69% and 86% of global competitors.

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Chinasoft International

Mattock invested in 10.268 million shares of Chinasoft International at an average price of 3.92 Hong Kong dollars per share.

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Chinasoft International has a profitability rank of 8, suggesting good growth potential. The company’s operating margin is near a 10-year high of 10.17% and outperforms 69% of global competitors.

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According to its 2016 annual report, the information technology services company reported comprehensive income of 429,330,000 yuan for full-year 2016, approximately 82,755,000 yuan higher than its full-year 2015 comprehensive income. Diluted earnings per share increased 0.062 yuan.

See also

GuruFocus tracks several Matthews Asia Funds, including the Matthews Japan Fund (Trades, Portfolio) and the Matthews Pacific Tiger Fund (Trades, Portfolio). You can view the latest guru trades by clicking “Latest Guru Trades” under the Gurus tab. Premium members have access to portfolio information on over 150 gurus.

Disclosure: The author has no positions in the stocks mentioned.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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GuruFocus has detected 8 Warning Signs with Midea Group Co Ltd $SZSE:000333.
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