Earlier this week, the Matthews Japan Fund (Trades, Portfolio) released its third-quarter portfolio updates. The fund sold out of Fuso Chemical Co. Ltd. (TSE:4368, Financial) and Outsourcing Inc. (TSE:2427, Financial) and reduced its holdings in 24 companies. It made no new buys, but it did add to some of its holdings, primarily Nintendo Co. Ltd. (TSE:7974, Financial) and Murata Manufacturing Co. Ltd. (TSE:6981, Financial).
The Matthews Japan Fund seeks long-term capital appreciation with the objective of having at least 80% of its funds invested in companies located in Japan. It looks for companies that it believes can maintain sustainable growth over a long period of time, basing its analysis on balance sheet information, employees and management, cash flow, products and marketing strategies.
The fund currently has an equity portfolio valued at $2.29 billion. Its turnover rate is a low 2% this quarter. Currently, the fund’s top holdings are Toko Marine Holdings Inc (TSE:8766), Nippon Telegraph and Telephone Corp. (TSE:9432) and Keyence Corp. (TSE:6861).
Fuso Chemical
The Matthews Japan Fund sold all 1,470,500 shares of Fuso Chemical, impacting the equity portfolio by -1.11%. During the quarter, the stock traded at an average price of 2,213.55 yen ($20.27) per share.
Fuso Chemical is a chemical company that operates in two segments: life sciences and electronic materials. The life sciences segment produces citric acid and malic acid for use in the food industry, while the electronic segment focuses on the research and production of semiconductor materials such as ultra-high-purity colloidal silica for use in increasingly smaller core components. It currently has a market cap of 108.29 billion yen.
The chemical company has a GuruFocus financial strength rating of 10 out of 10 and a profitability rating of 8 out of 10. It has a price-earnings ratio of 17.19, a price-book ratio of 1.95, no debt and a three-year revenue growth rate of 3.3%. According to the Peter Lynch chart, the stock has recently entered the overvalued range.
Outsourcing
The fund also sold all 2,255,100 of its shares in Outsourcing, impacting the equity portfolio by -1.04%. The stock traded at an average price of 1,137.9 yen per share during the quarter.
Outsourcing is a job-placement networking company established in 1997. It specializes in placing engineering, manufacturing and service operations employees in domestic and overseas positions. As of the end of 2018, the company had over 83,000 placed employees on record. Its market cap is currently 148.09 billion yen.
The company has a GuruFocus financial strength score of 5 out of 10 and a profitability score of 9 out of 10. It has a price-earnings ratio of 19.99, a price-book ratio of 2.83, a cash-to-debt ratio of 0.43 and a three-year revenue growth rate of 43.3%. According to the Peter Lynch chart, the stock is most likely trading at a fair price.
Nintendo
The fund added 47,700 shares to its Nintendo position, more than doubling its holding in the company and impacting the equity portfolio by 0.78%. Shares traded at an average price of 40,605.3 yen during the quarter.
Nintendo was founded in 1889 as a playing card company. Since then, it has evolved to become one of the largest gaming companies in the world. The company recently released a lite version of its latest console, the Nintendo Switch, which it expects to boost sales. The company has a current market cap of 5 trillion yen.
GuruFocus has granted Nintendo a financial strength rating of 10 out of 10 and a profitability score of 8 out of 10. It has a price-earnings ratio of 27.99, a price-book ratio of 3.72, no debt and a three-year revenue growth rate of 33.5%.
With the recent release of the Switch and the Switch Lite consoles, Nintendo is currently at the bottom of its well-established revenue cycle. During the next quarter, the company will likely see higher earnings and lower costs.
Murata Manufacturing
The fund also added 167,900 shares to its holding of Murata Manufacturing, impacting the equity portfolio by 0.36%. During the quarter, shares of the company traded at an average price of 4,783.58 yen.
Murata Manufacturing is a technology company that develops electronics solutions for the mobile device, network, wireless, automotive, industrial and health care industries, among many others. For the company’s second-quarter 2019, which ended on Sept. 30, it attributed its earnings success primarily to a 12.8% increase sales of smartphone components. The company currently has a market cap of 4.03 trillion yen.
Murata has a GuruFocus financial strength score of 8 out of 10 and a profitability score of 7 out of 10. It has a price-earnings ratio of 18.74, a price-book ratio of 2.52, a cash-to-debt ratio of 1.45 and a three-year revenue growth decline of 24.5%. The technology development company increased its sales in the most recent quarter and made some progress in reducing its order backlog.
Disclosure: Author owns no shares in any of the stocks mentioned.
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