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Matthews Pacific Tiger Fund Buys 1 New Stock, Sells 2 in 1st Quarter

- By Sydnee Gatewood

The Matthews Pacific Tiger Fund (Trades, Portfolio), part of Matthews International Capital Management, disclosed that it established one new position and divested of two others in its first-quarter portfolio, which was released last week.


Managed by Sharat Shroff, Rahul Gupta and Raymond Deng, the San Francisco-based fund invests mostly in Asian companies, excluding Japan, in order to achieve long-term capital appreciation. The fund managers look for companies that are capable of sustainable growth.

Based on these criteria, the fund opened a position in Kweichow Moutai Co. Ltd. (600519.SS) and closed its DKSH Holding Ltd. (DKSH.SW) and Thermax Ltd. (BOM:500411) holdings during the quarter.

Kweichow Moutai

The fund invested in 917,973 shares of Kweichow Moutai, dedicating 1.34% of the equity portfolio to the position. The stock traded for an average price of 713.22 yuan ($105.39) per share during the quarter.

The Chinese liquor manufacturer, which also produces nonalcoholic beverages, food products and packing materials, has a market cap of 1.22 trillion yuan; its shares closed at 974 yuan on Friday with a price-earnings ratio of 34.76, a price-book ratio of 9.87 and a price-sales ratio of 15.72.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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Kweichow Moutai's financial strength and profitability and growth were both rated 9 out of 10 by GuruFocus. In addition to no long-term debt and comfortable interest coverage, the robust Altman Z-Score of 26.66 indicates the company is in good fiscal health.

Although the operating margin is in decline, it still outperforms the majority of competitors. Kweichow Moutai is also supported by strong returns, consistent earnings and revenue growth, a high Piotroski F-Score of 7, which suggests operations are in great condition, and a business predictability rank of four out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 9.8% per year.

With its purchase of 0.07% of outstanding shares, the Pacific Tiger Fund is now the company's largest guru shareholder. The Matthews China Fund (Trades, Portfolio) and Value Partners (Trades, Portfolio) also own the stock.

DKSH Holding

The Pacific Tiger Fund divested of 2.8 million shares of DKSH Holding, impacting the equity portfolio by -2.43%. The stock traded for an average price of 65.74 Swiss francs ($64.52) per share during the quarter.

GuruFocus estimates the fund lost 7.9% on the investment since establishing it in the second quarter of 2013.

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The business services company, which is headquartered in Switzerland, has a market cap of 4.03 billion francs; its shares closed at 61.95 francs on Friday with a price-earnings ratio of 15.81, a price-book ratio of 2.35 and a price-sales ratio of 0.36.

According to the Peter Lynch chart, the stock is slightly overvalued.

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GuruFocus rated DKSH's financial strength 7 out of 10. Although the company has issued approximately 30.7 million francs in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. The Altman Z-Score of 3.69 also suggests the company is fiscally stable.

The company's profitability and growth scored a 6 out of 10 rating. While the operating margin is in decline, strong returns are outperforming industry peers. DKSH is also supported by a moderate Piotroski F-Score of 5, which suggests business operations are stable.

No other gurus are currently invested in the stock.

Thermax

Matthews dumped 5.3 million shares of Thermax, impacting the equity portfolio by -1.04%. The stock traded for an average price of 1,051.15 rupees ($15.17) during the quarter.

According to GuruFocus, the fund lost an estimated 8.1% on the investment since fourth-quarter 2016.

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The Indian engineering company, which is involved in creating energy and environmental solutions, has a market cap of 115.46 billion rupees; its shares closed at 969.3 rupees on Friday with a price-earnings ratio of 39.80, a price-book ratio of 4.12 and a price-sales ratio of 2.04.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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Driven by sufficient interest coverage, Thermax's financial strength was rated 6 out of 10 by GuruFocus.

The company's profitability and growth did not fare as well, scoring a 3 out of 10 rating. Although the operating margin is expanding and returns are strong and outperforming competitors, Thermax's revenue per share has declined over the past five years.

No other gurus are currently invested in Thermax.

Additional trades

During the quarter, the fund also boosted and reduced several positions. It added to its holdings of China Resources Land Ltd. (HKSE:01109), Line Corp. (LN), Guotai Junan Securities Co. Ltd. (HKSE:02611) and Naver Corp. (035420.KS), among others. Positions it reduced included Genting Bhd (GENT.KL), Kotak Mahindra Bank Ltd. (BOM:500247) and Tasly Pharmaceutical Group Co. Ltd. (600535.SS).

Matthews' $8.66 billion equity portfolio, which is composed of 60 stocks, is largely invested in the financial services and consumer defensive sectors. According to its website, the fund posted an -11.11% return in 2018. Its benchmark, the MSCI All Country Asia ex Japan Index, posted a return of -14.37% for the same period.

Disclosure: No positions.

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This article first appeared on GuruFocus.