The Thai Capital Fund, Inc. (the “Fund”) TF -1.45 percent, an emerging markets 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, 2012 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.
First Quarter Earnings Results
For the quarter ended March 31, 2012, the Fund earned net investment income of approximately US $30,000 (equivalent to income of US $0.01 per share). Net realised and unrealised gains from investment activities and foreign currency transactions for the quarter ended March 31, 2012 were approximately US $7,287,000 (equivalent to a gain of US $2.04 per share).
In comparison, for the quarter ended March 31, 2011, the Fund earned net investment income of US $76,000 (equivalent to income of US $0.02 per share). Net realised and unrealised losses from investment activities and foreign currency transactions for the quarter ended March 31, 2011 were approximately US $1,734,000 (equivalent to a loss of US $0.50 per share).
On March 31, 2012, the total net assets of the Fund were approximately US $43.2 million. The Fund’s net asset value (“NAV”) per share on that date was US $12.11, based on 3,564,814 shares outstanding. In comparison, on March 31, 2011, the Fund’s total net assets were approximately US $49.6 million. The NAV per share on that date was US $14.41, based on 3,440,992 shares outstanding. The Fund generated an investment return of 20.38 percent for the three months ended March 31, 2012, when measured against the Fund’s NAV per share of US $10.06 calculated on December 31, 2011. In comparison, the Stock Exchange of Thailand (“SET”) Index increased 19.94 percent during the same period, in US dollar terms.
As of March 31, 2012, the Fund had 96.23 percent of its net assets invested in Thai equities and 3.65 percent in Thai cash instruments. The remaining assets were made up of 1.13 percent in short-term US dollar time deposits and liabilities in excess of other assets of 1.01 percent.
As of May 10, 2012, the Fund had total net assets of approximately US $42.6 million, equivalent to a NAV per share of US $11.94. On that same date, the closing price for the Fund’s shares on the NYSE Amex was US $11.52, representing a trading discount of 3.52 percent to its NAV per share.
First Quarter Market Review
In the first quarter of 2012, the SET Index closed at 1196.77, an increase of 171.45 points or 16.72 percent with daily average turnover of Thai Baht 30.46 billion and foreign net investment of Thai Baht 82.77 billion. In January 2012, the SET Index posted strong performance as external factors supported investments in risk assets. US economic figures generally exceeded expectations during the month, notably those related to the US labour market. More importantly, stress in European bond and money markets eased after the 3-year long-term refinancing operations (“LTRO”) programme from the European Central Bank (“ECB”) was effective in boosting the liquidity in the banking system. Strength in the energy sector and to a lesser extent telecom sector drove the strong performance of the SET Index, while the Thai banking sector underperformed the market due to uncertainty about the fees to be charged for the Financial Institutions Development Fund. The SET Index continued its bullish pattern in February 2012, as foreign investors continued to be in ‘risk-on’ mode and poured liquidity into Asian markets, including the SET. Increased confidence that Greece would escape disorderly default on its debt and signs of ample liquidity from both the ECB and the United States Federal Reserve were major reasons behind the improved risk appetite. The energy sector led the pack after tensions between Western countries and Iran drove oil prices to a high level during the month.
The SET Index remained on an upward trend in March 2012, in response to the favourable results of the Greek private sector bond swap, a second LTRO and the overall resilience of US economic data. Investors’ cautious views on bonds and commodities resulted in a swap into stocks. Domestic plays like the bank, telecom and property sectors led the rally, while the energy sector declined slightly during the month.
Despite the risk that the strong performance of the SET Index over the past six months may be reversed due to the weak global economic environment, particularly in Europe, we believe the loosening monetary policies from major central banks, such as the United States Federal Reserve, the ECB, and the Bank of Japan, have given increased liquidity to the financial system and have reduced the global equity market downside risk. However, we believe there are remaining risks for the markets, including the slowdown of the Chinese economy and concerns in Europe regarding Spain’s fiscal problems. Therefore going ahead, we expect that stock markets, including the SET, will still be subject to many risks and will be somewhat volatile, especially given that current valuations have risen over the past year.
Another factor that should bring the attention of investors all around the world is the Federal Open Market Committee meeting on April 24-25, 2012. The focus will be on the United States Federal Reserve chair’s wordings about the US economic situation and likelihood of a Quantitative Easing-3 (“QE3″) after the end of Operation Twist in June 2012. If the economy is better than expected, the potential QE3 will decrease. At the moment, however, it seems that markets have prepared for potential QE3. So we expect investors will focus more on the perceived outlook for the US economic situation.
In Thailand, April 2012 is the month of quarterly earnings result announcements by banks and Thai companies reported strong earnings results, as Thai investors had expected. We believe this is because last year’s flooding in Thailand resulted in companies needing loans to reconstruct their operation. Since the results were as good as expected, non-bank sectors results are also expected to improve, compared the fourth quarter of last year. Results from non-bank sectors should be announced by mid-May 2012.
The major potential risk in Thailand currently is inflation. Due to high consumption of imported oil, high oil prices will result in potential inflation. The risk of inflation will be even worse if the government’s implementation of a minimum wage policy, which will start in April 2012, does not come out as expected as some academics have predicted that this policy will cause increased inflation.
In April 2012, the SET Index is likely to be traded in an estimated range of 1150-1250 points as foreign investors are not likely to reduce their positions soon. In terms of valuation based on forecasted earnings per share growth of 20.8 percent for 2012, the Thai stock market is trading on price-to-earnings ratio for 2012 of 12.8x, price-to-book value ratio of 2.0x with a dividend yield of 3.63 percent (source:Bloomberg forecast as of March 30)(source:2012). Compared to the 5-year historical average valuation of price-to-earnings of 14.9x, price-to-book value ratio of 1.7x and a dividend yield of 4.2 percent, the valuation of current Index is still cheaper in terms of price-to-earnings but is a bit expensive in terms of price-to-book value and dividend yield.
The equity classifications of the Fund held at March 31, 2012 were:
Industry Net Assets
1. Energy 23.85 percent
2. Banks 16.02
3. Communication 11.93
4. Commerce 10.25
5. Property Development 7.68
6. Food and Beverage 7.56
7. Construction 6.77
8. Petrochemicals 6.00
9. Media & Publishing 2.24
10. Transportation 2.03
The ten largest equity positions held by the Fund at March 31, 2012 were:
Issue Net Assets
1. PTT Public Co., Ltd 10.83 percent
2. Advanced Info Service Public Co., Ltd 8.50
3. PTT Exploration & Production Public Co., Ltd 5.98
4. Charoen Pokphand Foods Public Co., Ltd 5.95
5. CP ALL Public Co., Ltd 5.85
6. The Siam Cement Public Co., Ltd 5.81
7. Kasikornbank Public Co., Ltd 4.04
8. Bangkok Bank Public Co., Ltd 3.90
9. Krung Thai Bank Public Co., Ltd 3.88
10. Thai Oil Public Co., Ltd 3.58
QUARTERLY RESULTS OF OPERATIONS*
And Unrealised Net Increase
Gains (Losses) on (Decrease) in
Investments and Net Assets
For the Quarter Net Investment Foreign Currency Resulting
Ended Income (Loss)* Transactions* From Operations
——— ——— ———
Total Per Total Per Total Per
(000′s) Share (000′s) Share (000′s) Share
—- —- —- —- —- —-
March 31, 2012 $ 30 $ 0.01 $ 7,287 $ 2.04 $ 7,317 $ 2.05
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March 31, 2011 $ 76 $ 0.02 $ (1,734) $ (0.50) $ (1,658) $ (0.48)
June 30, 2011 347 0.10 (2,952) (0.86) (2,605) (0.76)
September 30, 2011 321 0.09 (6,513) (1.84) (6,192) (1.75)
December 31, 2011 11 0.00 3,173 0.91 (6,192) 0.91
—- —- —- —- —- —-
For the Year Ended
December 31, 2011 $ 755 $ 0.21 $ (8,026) $ (2.29) $(10,455) $ (2.08)
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PER SHARE SELECTED QUARTERLY FINANCIAL DATA
Net Asset Market Share
For the Quarter Ended Value Price** Volume**
———- ———- —–
High Low High Low (000′s)
—– —– —– —– —–
March 31, 2012 $12.23 $10.05 $11.61 $ 8.64 610
March 31, 2011 $15.12 $13.15 $14.00 $11.22 301
June 30, 2011 15.33 10.77 13.31 9.08 141
September 30, 2011 11.93 9.16 10.37 8.07 187
December 31, 2011 10.65 8.49 9.19 7.21 180
* Net of Thai withholding tax. ** As reported on the NYSE Amex.
The Thai Capital Fund, Inc.
John J. O’Keefe
Telephone: (800) 933-3440 or (201) 915-3054
www.daiwast.com Email Contact