JERSEY CITY, NJ, May 14, 2010 (Marketwire) --
JERSEY CITY, NJ -- (Marketwire) -- 05/14/10 -- The Thai Capital Fund, Inc. (the "Fund") (NYSE Amex: TF), a closed-end management investment company seeking long-term capital appreciation through investment primarily in equity securities of Thai companies, today announced its results for the quarter ended March 31, 2010 and commented on the economic outlook for Thailand.
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, 2010, the Fund earned net investment income of U.S. $122,000 (equivalent to income of U.S. $0.04 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended March 31, 2010 were approximately U.S. $3,735,000 (equivalent to a gain of U.S. $1.18 per share). In comparison, 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).
On March 31, 2010, the total net assets of the Fund were approximately U.S. $40.7 million. The net asset value ("NAV") per share on that date was U.S. $12.84, based on 3,172,313 shares outstanding. In comparison, on March 31, 2009, total net assets were approximately U.S. $22.3 million. The NAV per share on that date was U.S. $7.03, based on 3,167,316 shares outstanding. The Fund generated an investment return of 10.50% for the three months ended March 31, 2010, when measured against the NAV per share of U.S. $11.62 calculated on December 31, 2009. In comparison, the Stock Exchange of Thailand ("SET") Index increased 10.69% during the same period, in U.S. dollar terms.
As of March 31, 2010, the Fund had 98.28% of its net assets invested in Thai equities and 1.09% in Thai cash instruments. The remaining assets were made up of 1.00% in short-term U.S. dollar time deposits and liabilities in excess of other assets of (0.37)%.
As of May 13, 2010, the Fund had total net assets of approximately U.S. $40.4 million, equivalent to a NAV per share of U.S. $12.73. On that same date, the Fund's shares on the NYSE Alternext closed at U.S. $10.59, representing a trading discount of 16.81% to its NAV per share.
Fourth Quarter Market Review and Market Outlook
On March 31, 2010, the SET Index closed at 787.98, up 53.44 for the quarter (7.28%). In the quarter, the SET moved up in the first half of January driven by local fund flows. However, the SET fell sharply after that as both external and internal factors turned negative, including China monetary tightening, U.S. plans to restrict banks from conducting hedge fund or proprietary trading business, operation and construction halts at the Map Ta Phut industrial complex and the uncertain political situation in Thailand.
In February 2010, the market consolidation continued in the first half of the month, but accelerated in the second half. Although the local political situation was uncertain ahead of the Thai court's ruling on Mr. Shinawatra's assets on February 26th, foreign investors seemed optimistic, evidenced by the favorable fund flow with large net buying of Bt5.4 billion.
In March 2010, the Thai market posed an impressive rally despite the prevailing political uncertainty in the aftermath of the Supreme Court's verdict on Mr. Shinawatra's assets and the Red Shirts' demonstration. The resilient economic theme and foreign liquidity searching for higher yields in Asia drove large-cap stocks in the market, especially stocks in the energy and banking sectors.
Market Outlook
The global economy continues to show strong recovery signs as reflected in rising manufacturing and consumption indices. The latest U.S. economic data such as the Institute for Supply Management ("ISM") Index, retail sales and consumer confidence indicated that the world's largest economy is well on the road to recovery. However, unemployment remains high at 9.7% as of March 31, 2010 and there are few signs of improvement in the U.S. housing market.
A similar picture has also emerged in Thailand where the domestic economy has been led by a sharp improvement in exports and higher domestic spending. In value terms, exports surged by 27.2% year-on-year for the first two months of 2010 mainly due to stronger demand for industrial products (i.e. electronics, autos and parts, electrical appliances and plastics) and higher prices for agricultural commodities such as rice, rubber and sugar. Exports and imports have shown robust growth this year, with Thailand posting a trade surplus of US$1.04bn during January and February 2010. Meanwhile the momentum for private consumption remains strong, with the Private Consumption Index (PCI) increasing by 7.2% year-on-year for the first two months thanks to rising farm income, a solid export recovery and government stimulus spending.
With U.S. and global demand showing signs of recovery, the resulting upturn in global trade has meant strong growth in Thai exports. Meanwhile consumer spending should see further growth due to the improvement in the export and manufacturing sectors, higher farm incomes and government stimulus spending. The biggest near-term risk is continuing political instability, which could lead to policy gridlock and delays, or reductions, in the government's spending program.
A key factor that could result in the withdrawal of funds from risky assets is a Federal Reserve rate increase, which could occur during the third quarter of 2010. This is likely to have negative implications for fund flows where it might trigger a reversal of fund flows. Prolonged political unrest is another major risk factor although this could be offset by better-than-expected global demand and an improvement in farm incomes.
A crucial factor in Thailand's economic recovery has been the resurgence in international trade. This partly reflects inventory rebuilding in Asia but is also a result of growing global demand. In U.S. dollar terms, the value of Thai exports fell 14% in 2009 but has risen 27.2% in February 2010. The combined export volume in the six largest Asian economies (excluding China, India and Japan) was only 3% below their pre-recession peak at the end of 2009. Not surprisingly, with exports growing at a pace well above that of the 2002-07 boom years in the Thailand economy, export growth has been the fastest over the past three quarters. Electronics, vehicles & auto parts and agriculture products are expected to be main engines of Thailand's export recovery.
Domestic spending depends not only on consumers' income levels but also on their income expectations in the future. As previously mentioned, we anticipate a rise in income levels due to an improvement in export and manufacturing activities, higher agricultural commodity prices and government support programs for low-income earners (e.g. income guarantees for farmers and personal debt restructuring programs). The current political turmoil is likely to dampen consumer confidence in the short term but should not significantly impact earnings growth of leading listed retailers.
Among the sectors most at risk from a worsening of the political crisis are construction and contractors, which are partly driven by government spending on public works. The current Red Shirt protests in Bangkok are also hurting the tourism industry and foreign direct investment.
We are now expecting Thailand's 2010 GDP growth to be between 3.5-4.0%, driven by stronger than expected growth in exports and private consumption. However, growth should be moderate next year as the effects of fiscal stimulus measures will begin to wane and as central banks tighten monetary policy.
Based on forecasted average EPS growth for 2010 of 19.9%, the Thai stock market is trading on PER for 2010 of 11.8x and P/BV of 1.6x with a dividend yield of 3.3% (Source: Bloomberg forecast as of 3/31/2010). The market is expected to be volatile for the rest of the year. Upside could come from new earnings upgrades and a regional re-rating. A key downside risk is a U.S. interest rate increase, possibly in the third quarter of 2010 and continued political unrest in Thailand. We expect global markets to begin pricing for a U.S. interest rate hike when the U.S. unemployment rate starts to decline and the Fed indicates the end of its loose monetary policy in its policy meeting statement.
Investment Strategy
We have already adjusted the portfolio to a new model that is less dependent on changes in the cash equity mix to adjust to market expectations, with 60% of the portfolio invested in well diversified, high growth mid-cap stocks and 40% in well diversified moderate large-cap stocks. In March, the portfolio benefited from the additional alpha generated by this model, which moved higher when the market rallied and is expected to be quite defensive when index declines. We expect to use less of the cash-equity tactic and remain more fully invested through all market conditions, thus we expect that the portfolio will hold cash at a level of around 2-3%. Moreover, the Thai market was volatile in early April due to the political issue. From our experience, political events will make the market drop in the short period and rebound quickly. If this is the case, we will hold to our model and portfolio status until concern over the political situation subsides. However, if the SET Index rebounds and reaches an over-valued level, such as 870-900, too soon, we might consider taking a more defensive cash position again.
The ten largest equity classifications of the Fund held at March 31, 2010
were:
Percentage of
Industry Net Assets
-------------------
1. Energy 20.29%
2. Banks 18.20
3. Property Development* 10.71
4 Food & Beverage 10.23
5. Construction 8.41
6. Petrochemicals 6.31
7. Commerce 6.00
8. Finance & Securities 5.59
9. Agribusiness 4.14
10. Transportation 2.88
*Includes the value of warrants.
The ten largest equity positions held by the Fund at March 31, 2010 were:
Percentage of
Issue Net Assets
-------------------
1. PTT Public Co., Ltd 8.21%
2. Bank of Ayudhya Public Co., Ltd 6.27
3. PTT Exploration and Production Public Co., Ltd 5.49
4. The Siam Cement Public Co., Ltd 4.43
5. Charoen Pokphan Public Co., Ltd 4.14
6. Bangkok Bank Public Co., Ltd 4.11
7. Tisco Financial Group Public Co., Ltd 4.03
8. Supalai Public Co., Ltd 3.98
9. Dynasty Ceramic Public Co., Ltd 3.97
10. Thai Union Frozen Products Public Co., Ltd 3.94
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,
2010 $ 122 $ 0.04 $ 3,735 $ 1.18 $ 3,857 $ 1.22
======== ======== ========= ======== ======== ========
March 31,
2009 $ 66 $ 0.02 $ (975) $ (0.31) $ (909) $ (0.29)
June 30,
2009 326 0.10 8,444 2.67 8,770 2.77
September 30,
2009 84 0.03 4,574 1.44 4,658 1.47
December 31,
2009 (49) (0.02) 1,715 0.54 1,666 0.52
-------- -------- --------- -------- -------- --------
For the Year
Ended
December 31,
2009 $ 427 $ 0.13 $ 13,758 $ 4.34 $ 14,185 $ 4.47
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, 2010 $ 12.84 $ 10.92 $ 10.82 $ 8.65 180
March 31, 2009 $ 7.53 $ 6.66 $ 7.21 $ 5.85 149
June 30, 2009 10.10 7.24 9.40 6.19 109
September 30, 2009 11.45 9.47 9.78 7.68 188
December 31, 2009 11.75 10.93 10.70 9.02 171
* Net of Thai withholding tax.
** As reported on the NYSE Alternext, formerly the American Stock
Exchange, LLC.
The Thai Capital Fund, Inc.
Contact:
John J. O'Keefe
Telephone: (800) 933-3440 or (201) 915-3054
www.daiwast.com
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