Earlier this week, the Matthews Japan Fund (Trades, Portfolio) released its portfolio updates for the first quarter of 2023, which ended on March 31.
The Matthews Japan Fund (Trades, Portfolio) seeks sustainable long-term capital appreciation by investing at least 80% of its assets in Japan-listed common and preferred stocks. It evaluates stocks using a bottom-up, fundamentals-based approach with a focus on long term results. The fund is managed by Taizo Ishida, Shuntaro Takeuchi and Donghoon Han.
For the first quarter, the fund’s focus was on consumer essentials stocks as its top three buys consisted of clothing retailer Fast Retailing Co. Ltd. (TSE:9983, Financial), hygiene products maker Unicharm Corp. (TSE:8113, Financial) and convenience food producer Nissin Foods Holdings Co. Ltd. (TSE:2897, Financial).
Investors should be aware that portfolio updates for mutual funds do not necessarily provide a complete picture of a guru’s holdings. The data is sourced from the quarterly updates on the website of the fund(s) in question. This usually consists of long equity positions in U.S. and foreign stocks. All numbers are as of the quarter’s end only; it is possible the guru may have already made changes to the positions after the quarter ended. However, even this limited data can provide valuable information.
Fast Retailing
The fund initiated a 54,900-share stake in Fast Retailing (TSE:9983, Financial), giving the stock a weight of 1.87% in the equity portfolio. During the quarter, shares traded for an average price of 27,061.30 Japanese yen ($198.23).
Fast Retailing is a leading Japanese retail holding company that owns the popular Uniqlo brand as well as J Brand, Theory and more. The company has a strong global presence, with over 2,200 stores in more than 25 countries. Fast Retailing has been expanding aggressively in recent years, focusing on capturing market share in both developed and emerging markets with its unique, simple and cheap but high-quality textiles.
The company's solid financial position, coupled with its innovative approach to retail, positions it well for future growth. The company’s revenue has mostly recovered to pre-pandemic levels, and its earnings per share have risen to new highs, indicating better profitability and value creation.
Fast Retailing gets a fairly valued assessment from the GF Value chart. The price-earnings ratio is on the high side at 35, but the company’s recent growth and growth outlook may justify the higher valuation.
Unicharm
The fund also bought 274,100 shares of Unicharm Corp. (TSE:8113, Financial), giving the stock a 1.76% weight in the equity portfolio at the quarter’s average share price of 5,040.00 yen.
Unicharm is a Japanese manufacturer of disposable hygiene products such as diapers, sanitary napkins and adult incontinence products as well as household cleaning products. This industry may be low growth, but the kinds of products Unicharm makes will always be in demand, and the company’s commitment to sustainability could help it take market share going forward.
The company has posted very solid growth for a consumer goods company, with revenue gaining an average of 8.2% per year and earnings per share up 13.6% per year over the past three years. It also boasts an operating margin of 12.87% and a net margin of 11.88, which beat 84% of industry peers.
According to the GF Value chart, Unicharm is fairly valued based on its growth and past valuation levels, despite the high price-earnings ratio of 49. The cash-debt ratio of 11.38 indicates plenty of dry powder for acquisitions and other growth initiatives.
Nissin Foods Holdings
The Matthews Japan Fund (Trades, Portfolio) purchased 122,400 shares of Nissin Foods Holdings (TSE:2897, Financial). At the quarter’s average share price of 11,013.70 yen, the stock has a weight of 1.75% in the equity portfolio.
Nissin Foods is a Japanese food company that specializes in convenience prepackaged foods like instant noodles, snacks and frozen foods. With an eye to the future, Nissin Foods has been exploring ways to incorporate healthy and sustainable ingredients into its products, as well as to leverage advances in technology to improve production processes.
Despite pursuing a strong growth strategy with strategic partnerships and acquisitions, this company has maintained a sterling balance sheet with an interest coverage ratio of 52.02. Nissin Foods' strong brand recognition and history of delivering high-quality products to consumers gives it an edge over competitors in the highly competitive food industry. It is a solid value creator with return on invested capital typically surpassing weighted average cost of capital.
The GF Value chart does warn Nissin Foods looks modestly overvalued. The price-earnings ratio of 34.08 and other valuation metrics have become overheated compared to the company’s historical levels.
See also
As of the quarter’s end, the fund held shares in 50 stocks valued at a total of $641 million. Other notable trades during the quarter included the sale of the fund’s stakes in Nintendo Co. Ltd. (TSE:7974), Seven & i Holdings Co. Ltd. (TSE:3382) and Terumo Corp. (TSE:4543).
The top holdings were Sony Group Corp. (TSE:6758) with 4.91% of the equity portfolio, Keyence Corp. (TSE:6861) with 4.73% and Shin-Etsu Chemical Co. Ltd. (TSE:4063) with 4.72%. In terms of sector weighting, the fund was most invested in technology, industrials and health care.
