The Matthews Asia Small Companies Fund (Trades, Portfolio), part of San Francisco-based investment firm Matthews Asia, disclosed two new positions in its fourth-quarter portfolio, which was released earlier this week.
Managed by Lydia So, Beini Zhou and Tiffany Hsiao, the fund invests in smaller companies across Asia, with the exception of Japan, that are capable of sustainable growth based on several fundamental characteristics. Its primary goal is long-term capital appreciation.
Based on these criteria, the fund established positions in Galaxy Surfactants Ltd. (BOM:540935, Financial) and Baozun Inc. (BZUN, Financial) during the quarter.
Galaxy Surfactants
The fund invested in 151,046 shares of Galaxy Surfactants for an average price of 1,199.52 rupees ($16.79) per share, allocating 1.38% of the equity portfolio to the holding.
The Indian manufacturer of specialty chemicals has a market cap of 39.67 billion rupees; its shares closed at 1,119.65 rupees on Thursday with a price-earnings ratio of 22.96, a price-book ratio of 4.87 and a price-sales ratio of 1.94.
The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.
GuruFocus rated Galaxy Surfactants financial strength 7 out of 10. In addition to having adequate interest coverage, the Altman Z-Score of 5.50 indicates the company is fiscally stable. The company’s profitability and growth scored a 6 out of 10 rating, driven by operating margin expansion and solid returns.
The Small Companies Fund holds 0.43% of the company’s outstanding shares.
Baozun
Matthews Asia picked up 41,400 shares of Baozun for an average price of $36.54 per share, dedicating 0.63% of the equity portfolio to the position.
The Chinese company, which provides digital and e-commerce solutions to assist brands in executing their online retail strategies, has a $2.04 billion market cap; its shares were trading around $35.29 on Friday with a price-earnings ratio of 60.68, a price-book ratio of 7.11 and a price-sales ratio of 2.92.
According to the Peter Lynch chart, the stock is overvalued.
Baozun’s financial strength was rated 7 out of 10 by GuruFocus, driven by sufficient interest coverage and a robust Altman Z-Score of 7.71. The company’s profitability and growth scored a 5 out of 10 rating. Although the company has poor earnings quality and recorded a slowdown in revenue per share growth, its margins and returns outperform more than half of its competitors. The low Piotroski F-Score of 2, however, indicates poor business conditions.
Ken Fisher (Trades, Portfolio) is the company’s largest guru shareholder with 0.07% of outstanding shares.
Additional trades
During the quarter, the portfolio managers also beefed up several other holdings: Nam Long Investment Corp. (STC:NLG, Financial), MicroPort Scientific Corp. (HKSE:00853, Financial), HIM International Music Inc. (ROCO:8446, Financial) and Humanica PCL (BKK:HUMAN).
The fund’s $188.8 million equity portfolio, which is composed of 65 stocks, is heavily invested in the technology sector, followed by consumer cyclical and health care. According to its fact sheet, the fund posted an -18.05% return in 2018, outperforming the benchmark by a slim margin. The MSCI All Country Asia ex. Japan Small Cap Index recorded a return of -18.63%.
Disclosure: No positions.
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