The T. Rowe Price Japan Fund (Trades, Portfolio) has revealed its portfolio for the first quarter of 2021. Top trades for the quarter include reductions in the fund's Fast Retailing Co. Ltd. (TSE:9983, Financial), SMS Co. Ltd. (TSE:2175, Financial) and SoftBank Group Corp. (TSE:9984, Financial) positions and an addition to its Hikari Tsushin Inc. (TSE:9435, Financial) holding alongside a new buy into Coconala Inc. (TSE:4176, Financial).
The fund was started in 1991 and seeks long-term growth of capital through investments in common stocks of companies located, or with primary operations, in Japan. The fund relies on a global team of investment analysts dedicated to in-depth fundamental research in an effort to identify companies capable of achieving and sustaining above-average, long-term earnings growth. Its leaders seek to purchase stocks of such companies at reasonable prices in relation to present or anticipated earnings, cash flow or book value.
Portfolio overview
At the end of the quarter, the fund's portfolio contained 61 stocks, with one new holding in Conconala (TSE:4176, Financial). It was valued at $1.11 billion and has seen a turnover rate of 1%. Top holdings for the fund are SoftBank Group, Hoshizaki Corp. (TSE:6465), Suzuki Motor Corp. (TSE:7269), Keyence Corp. (TSE:6861) and Fanuc Corp. (TSE:6954).
By weight, the top sectors represented are industrials (31.37%), technology (15.30%) and communication services (14%).
Fast Retailing
The fund slashed its Fast Retailing (TSE:9983, Financial) holding by 50.24% with the sale of 21,200 shares. During the quarter, the shares traded at an average price of 94,295.10 yen ($866.48) per share. Overall, the reduction had a -1.53% impact on the portfolio and GuruFocus estimates the total gain of the holding at 63.81%.
Fast Retailing is Japan's largest apparel company, operating the casualwear retail chain Uniqlo, known for its high-quality functional apparel at reasonable prices. The business is founded on a private-label apparel model whereby Fast Retailing is in charge of product design, production and sales. Fast Retailing is ranked the third-largest apparel company by sales globally, thanks to expansion of Uniqlo, which contributes more than 80% of group sales and 90% of profits. As at the end of August 2020, it runs 3,630 stores globally, including 813 and 1,439 Uniqlo stores in Japan and overseas, respectively. Other brands in its portfolio include GU and acquired brands Theory, Comptoir des Cotonniers, Princesse Tam Tam (French lingerie) and J Brand (premium denim).
On April 16, the stock was trading at 90,230 yen per share with a market cap of 9.17 trillion yen. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The strong profitability rank is propped up by operating and net margin percentages that beat at least 72% of industry competitors.
Coconala
The fund established a new holding in Coconala (TSE:4176, Financial) with the purchase of 377,200 shares. The shares traded at an average price of 2,251.89 yen per share during the first quarter. The new addition had a 0.58% impact on the portfolio and the holding has gained an estimated 0.98% in its short lifetime.
Coconala operates a website to buy and sell knowledge, skills and experience from users who are willing to teach.
As of April 16, the stock was trading at 2,217 yen per share with a market cap of 48.83 billion yen. There is not enough data to display a GF Value Line and the stock has yet to make it back to its debut price.
GuruFocus gives the company a financial strength rating of 4 out of 10. There is currently one severe warning sign issued for poor financial strength. The company's cash-to-debt ratio of 1.76 ranks it worse than 68.29% of the industry and is an all-time low for the company.
SMS
During the first quarter, the fund's SMS (TSE:2175, Financial) holding was cut by 17.89%. The fund sold 173,000 shares at an average price of 3,712.62 yen per share. GuruFocus estimates the total gain of the holding at 87.23% and the sale had an overall impact of -0.53% on the portfolio.
SMS is a Japanese company involved in providing various services targeting information infrastructure for the aging society. The company divides its search service by the following segments: nursing care, medical care, career, health care/senior life and global.
The stock was trading at 3,425 yen per share with a market cap of 293.98 billion yen. The GF Value Line shows the stock trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company has consistently increased revenue and net income throughout the last decade.
SoftBank Group
The fund's top holding SoftBank Group (TSE:9984, Financial) was also pulled back during the first quarter. With the sale of 58,300 shares, the holding was reduced by 5.7%. During the quarter, the shares traded at an average price of 9,370.64 yen per share. Overall, the sale had a -0.37% impact on the portfolio and GuruFocus estimates the total gain of the holding at 140.49%.
SoftBank is a Japan-based telecom and e-commerce conglomerate that has expanded mainly through acquisitions, and its key assets include a 28% stake in Chinese e-commerce giant Alibaba; a 40% owned mobile and fixed broadband telecom operator business in Japan. It also owns 75% of semiconductor chip designer ARM Holdings although has agreed to sell this and is waiting on regulatory approvals, and has a vast portfolio of mainly internet- and e-commerce-focused early stage investments. It is also a general partner of the $100 billion SoftBank Vision Fund 1 and sole investor in Softbank Vision Fund 2, both of which primarily invest in pre-IPO Internet companies.
On April 16, the stock was trading at 10,080 yen per share with a market cap of 17.65 trillion yen. According to the GF Value Line, the shares are trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength 3 out of 10, a profitability rank of 6 out of 10 and a valuation rank of 1 out 10. There are currently five severe warning signs, including an Altman Z-Score of 1 placing the company in the distress column and new long-term debt. Free cash flow and net income took a dive for the company in 2020 hitting a low point in the company's recent history.
Hikari Tsushin
One of two additions to any holding for the fund came from its position in Hikari (TSE:9435, Financial). The purchase of 18,100 shares boosted the holding by 29.38%. The shares that were purchased traded at an average price of 21,860.20 yen per share during the quarter. GuruFocus estimates the total gain of the holding at 65.21% and the addition had an overall impact of 0.30% on the portfolio.
Hikari Tsushin is a Japanese company that provides services such as networking and automation products offering individual insurance plans for small and medium-size enterprises. The company has three reporting segments: corporate, shop and insurance. The corporate segment offers products such as Wi-Fi routers, SIM cards, water coolers and LED lighting. Revenue is evenly split between the corporate and shop segments with insurance adding a small portion. The company earns the vast majority of its revenue in Japan.
As of April 16, the stock was trading at 22,500 yen per share with a market cap of 1.05 trillion yen. The shares are trading at a modestly undervalued rating according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 7 out of 10 and a valuation rank of 3 out of 10. There are currently no severe warning signs issued for the company. The company has consistently increased value for shareholders over the last few years by maintaining a return on invested capital that supports the weighted average cost of capital.
Disclosure: Author owns no stocks mentioned.
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