- By Margaret Moran
The Matthews Pacific Tiger Fund (Trades, Portfolio) seeks sustainable long-term capital appreciation by investing mostly in Asian companies, excluding Japan. It evaluates stocks using a bottom-up, fundamentals-based approach with a focus on long-term returns. The fund is managed by Sharat Shroff, Raymond Deng and Inbok Song.
Based on its investment criteria, the fund's biggest buys for the quarter were in LG Chem Ltd. (XKRX:051910), Weichai Power Co. Ltd. (SZSE:000338), Venture Corp. Ltd. (SGX:V03) and Taiwan Semiconductor Manufacturing Co. Ltd. (TPE:2330).
The fund took a new position of 266,688 shares in LG Chem, impacting the portfolio by 2.03%. During the quarter, shares traded for an average price of 636,341 South Korean won ($562.39).
LG Chem is the largest chemical company in South Korea. It started out as a cosmetics manufacturer, but has since increased its chemicals portfolio into a wide range of products grouped under four segments: Petrochemicals, Energy Solutions, Advanced Materials and Life Sciences.
On Nov. 5, shares of LG Chem traded around 677,000 won for a market cap of 52.25 trillion won and a price-earnings ratio of 111.57. The GuruFocus Value chart rates the stock as significantly overvalued.
GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. While the cash-debt ratio of 0.28 is lower than the industry median of 0.64, the Altman Z-Score is 2.91, indicating the company is not likely to face liquidity issues. The three-year revenue growth rate is high at 13.2%, but the three-year Ebitda growth rate of -3.6% shows profits shrinking somewhat.
The fund added 29,718,257 shares, or 137.05%, to its investment in Weichai Power for a total holding of 51,402,326 shares. The trade had a 0.91% impact on the equity portfolio. Shares traded for an average price of 15.65 Chinese yuan ($2.34) during the quarter.
Weichai Power is a company that specializes in the research, development and production of diesel engines for vehicles, marine vessels and power generators. It is majority-owned by the government via Weichai Group.
On Nov. 5, shares of Weichai Power traded around 16.70 yuan for a market cap of 121.67 billion yuan and a price-earnings ratio of 12.24. The GuruFocus Value chart rates the stock as modestly overvalued.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 8 out of 10. The interest coverage ratio of 11.55 indicates the company has plenty of funds to pay the interest on its loans, though the Altman Z-Score of 1.63 shows that bankruptcy could be possible in the next two years. The three-year revenue growth rate of 22.7% and Ebitda growth rate of 25.2% are outperforming 82% of competitors.
The fund bought 4,577,200 shares of Venture, impacting the equity portfolio by 0.89%. During the quarter, shares traded for an average price of 18.65 Singapore dollars ($13.75).
Venture Corp. is a Singapore-based electronics services company that provides contract manufacturing services, as well as design, engineering, customization and logistic services, to electronics companies around the world. It also trades and manufactures electronics and computer-related products.
On Nov. 5, shares of Venture Corp. traded around S$19.94 for a market cap of S$5.71 billion and a price-earnings ratio of 21.01. The GuruFocus Value chart rates the stock as significantly overvalued.
GuruFocus gives the company a financial strength rating of 9 out of 10 and a profitability rating of 7 out of 10. The cash-debt ratio of 35.23 and interest coverage ratio of 643.26 indicate a fortress-like balance sheet. The return on invested capital consistently surpasses the weighted average cost of capital, indicating that the company is creating value for shareholders.
Taiwan Semiconductor Manufacturing
The fund upped its stake in Taiwan Semiconductor Manufacturing by 4,249,000 shares, or 22.72%, for a total holding of 22,949,000 shares. The trade had a 0.87% impact on the equity portfolio. Shares traded for an average price of 411.03 New Taiwan dollars ($14.37) during the quarter.
Headquartered in Hsinchu, Taiwan, Taiwan Semiconductor is the world's largest independent semiconductor producer. It derives most of its profits from smartphone components and memory, though its internet of things products have seen increasing sales in recent years.
On Nov. 5, shares Taiwan Semiconductor traded around NT$451 for a market cap of NT$11.67 trillion and a price-earnings ratio of 25.66. The GuruFocus Value chart rates the stock as significantly overvalued.
GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. The interest coverage ratio of 202.63 and Altman Z-Score of 11.76 indicate a healthy balance sheet. The ROIC is consistently higher than the WACC, indicating a value-creating company.
As of the quarter's end, the fund held shares in 59 stocks valued at a total of $7.29 billion. The top holdings were Alibaba Holding Group (HKSE:09988) with 6.77% of the equity portfolio, Tencent Holdings Ltd. (HKSE:00700) with 6.41% of the equity portfolio and Samsung Electronics Co. Ltd. (XKRX:005930) with 5.24%.
In terms of sector weighting, the fund was most invested in technology, consumer cyclical and consumer defensive.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
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This article first appeared on GuruFocus.