Business & Finance
Business and Finance
Business and Finance
Wed, May 20, 2009
Tue, May 19, 2009 Thai Capital Fund: The Thai Capital Fund Reports First Quarter Earnings
JERSEY CITY, NJ--(Marketwire - May 19, 2009) - The Thai Capital Fund, Inc. (the "Fund") (
The Fund's investments in Thailand are made through a wholly owned investment plan ( the "Investment Plan") established under an agreement between SCB Asset Management Co., Limited ("SCBAM"), the Fund's investment manager, and the Fund. The Fund's investments through the Investment Plan are managed by SCBAM, located in Bangkok, Thailand. Daiwa SB Investments (Singapore) Limited, the Fund's investment adviser, provides SCBAM with advice regarding investments through the Investment Plan and manages the Fund's assets held outside the Investment Plan.
First Quarter Earnings Results
For the quarter ended March 31, 2009, the Fund earned net investment income of U.S. $66,000 (equivalent to income of U.S. $0.02 per share). Net realized and unrealized losses from investment activities and foreign currency transactions for the quarter ended March 31, 2009 were approximately U.S. $975,000 (equivalent to a loss of U.S. $0.31 per share).
In comparison, for the quarter ended March 31, 2008, the Fund earned net investment income of less than U.S. $1,000 (equivalent to less than U.S. $0.01 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended March 31, 2008 were approximately U.S. $2,016,000 (equivalent to a gain of U.S. $0.64 per share).
On March 31, 2009, the total net assets of the Fund were approximately U.S. $22.3 million. The net asset value per share on that date was U.S. $7.03, based on 3,167,316 shares outstanding. In comparison, on March 31, 2008, total net assets were approximately U.S. $44.0 million, equivalent to a net asset value per share of U.S. $13.91, based on 3,163,037 shares outstanding. The Fund generated a negative investment return of 3.96% for the three months ended March 31, 2009, when measured against the net asset value per share of U.S. $7.32 calculated on December 31, 2008. In comparison, the Stock Exchange of Thailand ("SET") Index decreased 5.61% for the same period, in U.S. dollar terms.
As of March 31, 2009, the Fund had 92.71% of its net assets invested in Thai common stocks and 4.80% in Thai cash instruments. The remaining assets were made up of 1.53% in short-term U.S. dollar time deposits and other assets in excess of liabilities of 0.96%.
As of May 14, 2009, the Fund had total net assets of approximately U.S. $26.9 million, equivalent to a net asset value per share of U.S. $8.51. On that same date, the Fund's shares on the NYSE Alternext closed at U.S. $7.70, representing a trading discount of 9.52% to its net asset value per share.
First Quarter Market Review
The SET Index remained flat but relatively resilient in January 2009 despite all the global negativity. In February, the SET Index continued to track global markets downward although it outperformed on a relative basis as the political environment continued to stabilize. Global equity markets have rallied strongly and have now rebounded more than 35% since the beginning of March as the investor risk appetite has strongly improved. The rally has been led by some of the more cyclical markets. Emerging markets have strongly outperformed developed markets, led by exporters such as Korea and Taiwan, where the economy is very sensitive to an improved global economic outlook. However, in March the SET Index moved sideways, but significantly underperforming MSCI Asia ex-Japan's Index during the same period. The underperformance, especially during the last week in March, was due mainly to renewed political uncertainties. The anti-government "red shirts," after a long subdued period, significantly raised their activity. This culminated in the continuing blockade of the Government House starting on March 26, 2009. Former Prime Minister Thaksin added fuel to the political fire by staging frequent phone-ins and videoconferences to address the anti-government crowd.
The recent strong rally of the Thai equity market was due to many factors. Domestically, the economy has started showing signs of improvement including a positive change in production in March. The political situation has been moving toward stability, as seen by an attempt by tri-party panels to study constitutional amendments. Globally, the outbreak of swine flu seems to be less severe than initially feared, and the idea that the U.S. economy will recover sooner than expected has started to be discussed. During the last two weeks in March, foreign investors were net buyers of over 2.5 billion Baht, although for 2009 YTD, they are still net sellers of 1.15 billion Baht.
Second Quarter 2009 Outlook: Bear Rally
The Bank of Thailand ("BOT") recently lowered its 2009 GDP forecast to a range of -1.5 to -3.5% from its previous January forecast of 0% to +2.0%. The new forecast is roughly in line with the National Economic and Social Development Board and Ministry of Finance forecasts of the economy contracting by as much as 3% this year, but not as bad as the -4% to -5% worst-case scenario mentioned by both the prime minister and finance minister. The BOT cited many reasons for its substantial downgrade in its economic forecast: 1) weaker-than-previously anticipated Thai exports as the global economy continues to slow; 2) lower-than-expected farm income on weakening agricultural commodity prices; 3) slower direct public spending than previously forecast even with the implementation of the Bt97.6 billion Phase I stimulus package; and, 4) expectations of a continuous drawdown of inventories during the course of this year. The BOT also said that "political turbulence could have more adverse effect than anticipated on the confidence of investors, consumers and tourists."
The BOT slightly revised down its 2010 GDP growth forecast from a range of +2.0% to +4.0% to +1.5% to +3.5%. It was very clear on reasons why the outlook for next year would be much brighter. First, the BOT is assuming that the global economic climate will gradually improve. Second, the Abhisit government's Phase II stimulus plan calling for state spending of Bt1.56 trillion for 2010 to 2012 will start to kick in. The BOT is also assuming that commodity prices will recover on stronger demand and there will be a restocking of inventory levels after the drawdown this year. Given these reasons, and based on our assumption of a 4.0% GDP contraction this year, we would be disappointed with anything less than a 3.5% economic rebound in 2010.
The BOT has not provided much guidance on future monetary policy. It is projecting headline inflation to average within the ranges of -1.0% to +1.0% in 2009 and +1.0% to +3.0% in 2010. The Thai central bank also mentioned that corporate profitability is down and the ability of households to service debt has diminished and that these issues require close monitoring. Also to be considered is the downgrade of Thailand's credit rating based on political concerns. So overall we will maintain our current forecast of a 25-basis point rate cut at the next meeting on May 20 and wait-and-see approach for the subsequent four meetings in the second half of 2009, and possibly a reversal in 2010 if the economic recovery comes through as now expected. We still foresee 2009 GDP contraction of between 5% and 6% while headline inflation might be around -0.7%. Even though we expect negative GDP growth in 2009, we also hope for some improvement in economic data from the current forecasts (as mentioned above).
At the current SET Index of 530 level, the Thai stock market is trading at a 2008 price to earnings ratio ("PER") of 14x or a 2009 PER of 9.9x. The Thai market might be expensive when considering the trailed PER of 2008, but if we consider the forecast market earnings per share of 2009 at 54.27 Bht a share, a PER of 9.9 - 10.0 level is still acceptable. However, any level of Index beyond 10x or above the 550 level could be full value, so that we do expect some consolidation if the Index increases over the 550 level. On the other hand, there are huge capital flow moves into regional markets and foreign investors are positioned as a net buyers throughout the region. Thus, due to the capital flow factor, the Thai market might continue in a bear rally even if the market is fully valued. Overall, we believe that 580 should be considered the peak for the Index in any short-term bear rally. Any level over 580 within the second quarter should be considered an over-valued level.
Investment Strategy
From our previous quarterly strategy, we expected to accumulate equity to become fully invested when the market drops down below the 380 level. However, the SET Index moved sideways between 420-450 and established strong support at 420. Then the SET Index broke above the 450 level in late March, so that our strategy changed to increasing the equity portion to 94-96% in early April and, after the Index rose around 17% within a month and half, we started to adjust the portfolio by taking profits and liquidating some expensive stocks (low growth and high PER).
As mentioned above, we believe the market should be considered fully valued around a 10x of PER, which is around 540-550 on the Index. At that level, we expect to adjust some portions of the portfolio. However, if the market rallies above the 580 level, which we consider as over-valued, we might raise cash to 12-15% from 7-9%. Our favorite sectors have changed to the commodities-related sector and the energy sector. We view the banking sector and the property sector as less attractive this year.
The ten largest equity classifications of the Fund held at March 31, 2009 were:
Percentage of Industry Net Assets ------------------- 1. Energy 22.65% 2. Banks 17.12 3. Commerce 10.84 4 Media & Publishing 9.25 5. Property Development 7.09 6. Communication 6.78 7. Health Care Services 4.46 8. Finance & Securities 3.74 9. Food & Beverage 3.23 10. Petrochemicals 2.61
The ten largest equity positions held by the Fund at March 31, 2009 were:
Percentage of Issue Net Assets ------------------- 1. PTT Public Co., Ltd 10.33% 2. PTT Exploration and Production Public Co., Ltd 9.66 3. Kasikornbank Public Co., Ltd 8.52 4. Bangkok Bank Public Co., Ltd 5.64 5. Advanced Info Service Public Co., Ltd 5.37 6. Amarin Printing & Publishing Public Co., Ltd 5.01 7. CP ALL Public Co., Ltd 4.79 8. Bangkok Chain Hospital Public Co., Ltd 4.46 9. Thanachart Capital Public Co., Ltd 3.74 10. BEC World Public Co., Ltd 3.49 QUARTERLY RESULTS OF OPERATIONS* Net Realized And Unrealized Gains (Losses) on Net Increase For the Net Investments and (Decrease) in Quarter Investment Foreign Currency Net Assets Resulting Ended Income (Loss)* Transactions* From Operations -------- ------------------ ------------------ ------------------ Total Per Total Per Total Per (000's) Share (000's) Share (000's) Share -------- -------- -------- -------- -------- -------- March 31, 2009 $ 66 $ 0.02 $ (975) $ (0.31) $ (909) $ (0.29) ======== ======== ======== ======== ======== ======== March 31, 2008 $ -0- $ -0- $ 2,016 $ 0.64 $ 2,016 $ 0.64 June 30, 2008 451 0.14 (5,772) (1.82) (5,321) (1.68) September 30, 2008 178 0.06 (7,935) (2.51) (7,757) (2.45) December 31, 2008 (197) (0.06) (7,300) (2.32) (7,497) (2.38) -------- -------- -------- -------- -------- -------- For the Year Ended December 31, 2008 $ 432 $ 0.14 $(18,991) $ (6.01) $(18,559) $ (5.87) ======== ======== ======== ======== ======== ======== PER SHARE SELECTED QUARTERLY FINANCIAL DATA For the Quarter Net Asset Market Share Ended Value Price** Volume** ------------ ----------------- ---------------- --------- High Low High Low (000's) ------- ------- ------- ------- --------- March 31, 2009 $ 7.53 $ 6.66 $ 7.21 $ 5.91 149 March 31, 2008 $ 13.97 $ 11.75 $ 13.55 $ 9.45 392 June 30, 2008 14.50 11.89 13.60 10.86 300 September 30, 2008 11.77 9.78 11.00 7.78 323 December 31, 2008 9.84 6.47 8.20 5.03 181
* Net of Thai withholding tax.
** As reported on the NYSE Alternext, formerly the American Stock Exchange, LLC.
