The Matthews Japan Fund (Trades, Portfolio) disclosed it established six new positions when it released its first-quarter portfolio last week.
Portfolio managers Kenichi Amaki and Taizo Ishida, who seek long-term capital appreciation by investing in Japanese companies that are capable of sustainable growth, took stakes in Otsuka Corp. (TSE:4768, Financial), Shimadzu Corp. (TSE:7701, Financial), Hitachi Ltd. (TSE:6501, Financial), Square Enix Holdings Co. Ltd. (TSE:9684, Financial), Sanwa Holdings Corp. (TSE:5929, Financial) and Outsourcing Inc. (TSE:2427) during the quarter.
Otsuka
The fund managers invested in 1.7 million shares of Otsuka for an average price of 4,805.77 yen ($43.98) per share, giving it 1.9% portfolio space.
The information technology service management company has a market cap of 836.15 billion yen; its shares closed at 4,410 yen on Monday with a price-earnings ratio of 26.49, a price-book ratio of 3.93 and a price-sales ratio of 1.21.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
As the company has a comfortable level of interest coverage and a high Altman Z-Score of 6.48, GuruFocus rated Otsuka’s financial strength 8 out of 10. Its profitability and growth was also rated 8 of 10, boosted by expanding operating margins, a strong Piotroski F-Score of 8 and a one-star business predictability rating (out of five).
With its purchase of 0.89% of outstanding shares, the fund became the company’s largest guru shareholder. The Oakmark International Small Cap Fund also holds the stock.
Shimadzu
The Japan Fund purchased 2.8 million shares of Shimadzu for an average price of 2,777.77 share, expanding the portfolio 1.72%.
Headquartered in Kyoto, the manufacturing company, which produces precision instruments, measuring instruments and medical equipment, has a market cap of 875.04 billion yen; its shares closed at 2,968 yen on Monday with a price-earnings ratio of 30.50, a price-book ratio of 3.39 and a price-sales ratio of 2.37.
According to the Peter Lynch chart below, the stock is overpriced as it is trading above its fair value.
Bolstered by strong interest coverage and a high Altman Z-Score, Shimadzu’s financial strength was rated 8 out of 10 by GuruFocus. Its profitability and growth was rated 7 of 10 as it has an expanding operating margin, a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
The fund holds 0.96% of the company’s outstanding shares.
Hitachi
Having previously exited a position in Hitachi in the second quarter of 2015, Matthews Japan established a new 8.1 million-share stake for an average price of 842.37 yen per share. The trade had an impact of 1.3% on the portfolio.
The IT services company has a market cap of 4.15 trillion yen; its shares closed at 859.5 yen on Monday with a price-earnings ratio of 13.91, a price-book ratio of 1.29 and a price-sales ratio of 0.45.
Based on the Peter Lynch chart below, the stock appears to be undervalued as it is trading below its fair value.
Hitachi’s financial strength and profitability and growth were both rated 6 out of 10 by GuruFocus. While the company has a sufficient level of interest coverage, its Altman Z-Score of 1.89 indicates it is under some minor financial stress. It is strengthened, however, by an expanding operating margin, a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
With 0.24% of outstanding shares, the Causeway International Value (Trades, Portfolio) Fund is the company’s largest guru shareholder. The Japan Fund holds 0.17%.
Square Enix
The fund bought 1.24 million shares of Square Enix for an average price of 4,919.62 yen per share, giving it 1.23% portfolio space.
The video game developer has a market cap of 556.67 billion yen; its shares closed at 4,675 yen on Monday with a price-earnings ratio of 22.28, a price-book ratio of 2.94 and a price-sales ratio of 2.19.
The Peter Lynch chart below shows the stock is trading higher than its fair value, suggesting it is overpriced.
As the company has a comfortable level of interest coverage and a high Altman Z-Score of 8.31, GuruFocus rated Square Enix’s financial strength 8 out of 10. Its profitability and growth was also rated 8 of 10, boosted by expanding operating margins, a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
The fund holds 1.04% of the company’s outstanding shares.
Sanwa Holdings
Matthews Japan invested in 3.77 million shares of Sanwa Holdings for an average price of 1,469.88 yen per share, expanding the portfolio 1.07%.
The Tokyo-based manufacturer of metal windows and doors has a market cap of 309.15 billion yen; its shares closed at 1,399 yen on Monday with a price-earnings ratio of 16.54, a price-book ratio of 2.21 and a price-sales ratio of 0.85.
According to the Peter Lynch chart below, the stock is overvalued as it is trading above its fair value.
Both Sanwa’s financial strength and profitability and growth were rated 7 out of 10 by GuruFocus. While the company has a sufficient level of interest coverage, its Altman Z-Score of 2.90 indicates it is under minor financial stress. The company’s outlook is strengthened by an expanding operating margin, a moderate Piotroski F-Score of 6 and a one-star business predictability rating.
With 1.41% of outstanding shares, the fund is the company’s largest guru shareholder. The T. Rowe Price Japan Fund (Trades, Portfolio) also owns the stock.
Outsourcing
The fund purchased 2.6 million shares of Outsourcing for an average price of 1,977 yen per share. The trade had an impact of 1.02% on the portfolio.
The employment services company has a market cap of 206.14 billion yen; its shares closed at 2,021 yen on Monday with a price-earnings ratio of 32.58, a price-book ratio of 8.25 and a price-sales ratio of 0.88.
Based on the Peter Lynch chart below, the stock appears to be overpriced as it is trading higher than its fair value.
GuruFocus rated Outsourcing’s financial strength 6 out of 10. While the company has been issuing new long-term debt for the past several years, it is at a manageable level. In addition, its Altman Z-Score of 3.70 implies the company is financially stable. Its profitability and growth was rated 7 out of 10, boosted by an expanding operating margin, a moderate Piotroski F-Score of 5 and a two-star business predictability rating.
The fund holds 2.59% of the company’s outstanding shares.
Other trades
The fund managers also added to many other positions during the quarter, including Kose Corp. (TSE:4922), Kyowa Execo Corp. (TSE:1951), Itochu Techno-Solutions Corp. (TSE:4739) and Rhom Co. Ltd. (TSE:6963).
The fund’s $4.7 billion portfolio, which is composed of 58 holdings, is largely invested in the technology, industrials and consumer cyclical sectors. According to its fact sheet, the fund outperformed its benchmark, the MSCI Japan Index, in 2017 with a return of 33.14%. The index posted a 24.39% return.
Disclosure: No positions.
