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Top 5 Buys of the Matthews Asia Small Companies Fund

- By Sydnee Gatewood

In its third-quarter portfolio, the Matthews Asia Small Companies Fund (Trades, Portfolio) disclosed it established 11 new positions.


Managed by Lydia So, Beini Zhou and Tiffany Hsiao, the fund seeks to achieve long-term capital appreciation by investing in small Asian companies, excluding Japanese companies, that are capable of sustaining growth based on a number of factors.

The fund's five largest new buys for the quarter were Chief Telecom Inc. (6561.TWO), Bilibili Inc. (BILI), FPT Digital Retail JSC (FRT), China YuHua Education Corp. Ltd. (HKSE:06169) and BeiGene Ltd. (HKSE:06160).

Chief Telecom

The fund invested in 958,000 shares of Chief Telecom for an average price of 194.38 New Taiwan dollars ($6.33) per share, giving the position 1.752% space in the equity portfolio.

The Taiwanese telecom company has a market cap of NT$10.84 billion; its shares closed at NT$157.5 on Monday with a price-earnings ratio of 22, a price-book ratio of 4 and a price-sales ratio of 4.53.

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

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Supported by a comfortable level of interest coverage and a high Altman Z-Score of 19.66, GuruFocus rated Chief Telecom's financial strength 8 out of 10. The company's profitability and growth scored a 6 out of 10 rating as a result of strong margins and returns and a high Piotroski F-Score of 8, which indicates operating conditions are stable.

The fund holds 1.39% of the company's outstanding shares.

Bilibili

Matthews picked up 300,500 shares of Bilibili for an average price of $12.48 per share, allocating 1.22% of the equity portfolio to the holding.

The Chinese video sharing website has a $4.02 billion market cap; its shares were trading around $14.45 on Tuesday with a forward price-earnings ratio of 85.47, a price-book ratio of 5.13 and a price-sales ratio of 5.63.

According to the price chart, the stock has climbed 29% since its initial public offering in March.

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Bilibili's financial strength was rated 9 out of 10 by GuruFocus, driven by comfortable interest coverage and a high Altman Z-Score of 7.39. The company's profitability and growth did not fare as well, scoring a 2 out of 10 rating as a result of poor margins and weak returns.

With 2.1% of outstanding shares, Chase Coleman (Trades, Portfolio) is the company's largest guru shareholder. The fund holds 0.11%.

FPT Digital Retail

The fund established a 1.17 million-share stake in FPT Digital Retail for an average price of 74,447.7 Vietnamese dong ($3.20) per share, dedicating 1.15% of the equity portfolio to the stake.

The Vietnamese joint stock company, which sells IT products and mobile handsets, was trading around 71,000 dong on Monday.

The stock has fallen roughly 20% since its debut in April.

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The Small Companies Fund is the only guru invested in the company.

China YuHua Education

The portfolio managers purchased 7.8 million shares of China YuHua Education for an average price of 4.61 Hong Kong dollars (59 cents) per share. The trade had an impact of 1.14% on the equity portfolio.

The Chinese company, which provides non-vocational education services, has a market cap of HK$11.56 billion; its shares closed at HK$3.58 on Monday with a price-earnings ratio of 25.28, a price-book ratio of 2.90 and a price-sales ratio of 9.44.

The Peter Lynch chart suggests the stock is overpriced.

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China YuHua Education's financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. The company is supported by a comfortable level of interest coverage, a high Altman Z-Score of 5.75, good margins and returns and a high Piotroski F-Score of 7. Weaknesses include a Sloan ratio that suggests poor earnings quality and declining revenue per share over the last 12 months.

With 1.06% of outstanding shares, Value Partners (Trades, Portfolio) is the company's largest guru shareholder. The Small Companies Fund holds 0.24%.

BeiGene

The fund bought 265,079 shares of BeiGene for an average price of HK$100.29 per share, impacting the equity portfolio by 1.07%.

The Chinese biopharmaceutical company has a market cap of HK$60.11 billion; its shares closed at HK$77.95 on Monday with a price-book ratio of 6.18 and a price-sales ratio of 20.47.

Since its IPO in August, GuruFocus says the stock has fallen approximately 25%.

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GuruFocus rated BeiGene's financial strength 6 out of 10. Despite issuing approximately $187.12 million in new long-term debt over the last three years and recording a loss in operating income, the Altman Z-Score of 8.99 indicates the company is financially sound. The company's profitability and growth did not fare as well, scoring a 3 out of 10 rating due to negative margins and returns and a moderate Piotroski F-Score of 4.

The fund holds 0.03% of the company's outstanding shares.

Other trades

The portfolio managers also established positions in Wise Talent Information Technology Co. Ltd. (HKSE:06100), Humanica PCL (HUMAN.BK), MicroPort Scientific Corp. (HKSE:00853), Karex Bhd (5247.KL), Nam Long Investment Corp. (STC:NLG) and HIM International Music Inc. (8446.TWO) during the quarter.

The fund's $332.4 million portfolio, which is composed of 73 stocks, is largely invested in the technology, consumer cyclical and health care sectors. According to its website, the fund slightly underperformed its benchmark in 2017 with a 30.59% return. The MSCI All Country Asia ex Japan Small Cap Index returned 33.84%.

Disclosure: No positions.

Read more here:

  • Matthews China Fund Buys 6 Stocks in 3rd Quarter
  • Robert Karr Doubles Down on Floor & Decor Holdings
  • David Carlson Buys 3, Sells 2 in 3rd Quarter


This article first appeared on GuruFocus.