SOURCE: Thai Capital Fund

November 24, 2009 11:51 ET

The Thai Capital Fund Reports Third Quarter Earnings

JERSEY CITY, NJ--(Marketwire - November 24, 2009) - The Thai Capital Fund, Inc. (the "Fund") (NYSE Alternext US: 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 September 30, 2009 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.

Third Quarter Earnings Results

For the quarter ended September 30, 2009, the Fund earned net investment income of U.S. $84,000 (equivalent to income of U.S. $0.03 per share), resulting in net investment income for the nine months ended September 30, 2009 of approximately U.S. $476,000 (equivalent to income of U.S. $0.15 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended September 30, 2009 were approximately U.S. $4,574,000 (equivalent to a gain of U.S. $1.44 per share). As a result, the net realized and unrealized gains for the nine months ended September 30, 2009 were approximately U.S. $12,043,000 (equivalent to a gain of U.S. $3.80 per share).

In comparison, for the quarter ended September 30, 2008, the Fund earned net investment income of U.S. $178,000 (equivalent to income of U.S. $0.06 per share), resulting in net investment income for the nine months ended September 30, 2008 of approximately U.S. $629,000 (equivalent to income of U.S. $0.20 per share). Net realized and unrealized losses from investment activities and foreign currency transactions for the quarter ended September 30, 2008 were approximately U.S. $7,935,000 (equivalent to a loss of U.S. $2.51 per share). As a result, the net realized and unrealized losses for the nine months ended September 30, 2008 were approximately U.S. $11,691,000 (equivalent to a loss of U.S. $3.69 per share).

On September 30, 2009, the total net assets of the Fund were approximately U.S. $35.7 million. The net asset value per share on that date was U.S. $11.27, based on 3,167,316 shares outstanding. In comparison, on September 30, 2008, total net assets were approximately U.S. $30.9 million. The net asset value per share on that date was U.S. $9.78, based on 3,163,037 shares outstanding. The Fund generated an investment return of 53.96% for the nine months ended September 30, 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 increased 65.72% during the same period, in U.S. dollar terms.

As of September 30, 2009, the Fund had 90.06% of its net assets invested in Thai equities and 10.12% in Thai cash instruments. The remaining assets were made up of 0.38% in short-term U.S. dollar time deposits and liabilities in excess of other assets of 0.56%.

As of November 19, 2009, the Fund had total net assets of approximately U.S. $35.7 million, equivalent to a net asset value per share of U.S. $11.27. On that same date, the Fund's shares on the NYSE Amex Exchange closed at U.S. $9.48, representing a trading discount of 15.88% to its net asset value per share.

Third Quarter Market Review

In the third quarter of 2009, the SET Index closed at 717.07, up by 119.59 or 20.0% with daily average turnover of Bt21.44 billion, slightly higher than Bt21.32 billion in the second quarter of 2009. Thai stocks outperformed the MSCI ex Japan Index by 3%. The main reasons were increased foreign funds flow due to renewed U.S. dollar weakness, the low interest rate environment, and growing signs of economic recovery. In July 2009, the IMF raised its 2010 global outlook and approved a $800 billion stimulus package. Domestically, the cabinet's consent of three contracts for the Mass Rapid Transit ("MRT") purple line made the contractor sector come back to life again. The condition of the Thai coalition government was benign and still under control. For the quarter, foreign investors posted net buys of Bt35.0 billion following net buying of Bt25.7 billion in the second quarter of 2009.

Although oil prices were flat for the quarter, speculation on the merger among the PTT group led the energy and petrochemical sectors up by 13.0% and 33.0%, respectively. The progress on Stimulus Package 2 ("SP2") worth Bt1.43 trillion also drove up the construction material sector 43.7%, the property sector 38.0% and the banking sector 19.7%.

Fourth Quarter Market Outlook

Although the risk of a market pull back is high as a court decision to suspend the operations of 76 new projects in the Map Tha Put Industrial Estate (MTPIE) is expected to adversely affect the energy and petrochemical sectors. However, the overall market outlook in the fourth quarter of 2009 remains positive. Growing signs of a recovery, the initial kick off of the government's second stimulus package worth Bt300 billion from the total package of Bt1.43 trillion and the continuation of U.S. dollar carry trades has heightened the risk appetite for Thai equities. Sectors to overweight in the fourth quarter of 2009 should be pro-cyclical growth stocks for the upturn in the economy and those that benefit from stimulus packages like the banking sector. Construction materials and property are key sectors that should perform well. Larger rural spending after government budget allocations to basic infrastructure projects and the crop price stabilizing project should benefit those that have large revenue exposure from the provincial areas.

Therefore, any weaknesses in the market would be considered as an opportunity to accumulate stocks. Based on our bottom-up valuation approach, the SET Index target is now 756 points but likely to rise more as revisions of earnings and target prices have been on an upward trend.

Thai Economic Outlook

A double-dip recovery of the Thai economy is unlikely. However, a gradual recovery of Gross Domestic Product ("GDP") growth to 2.5% is expected in 2010, lower than market consensus of 3.0-3.5%. As the world economy is still fragile, we expect gradually improving exports (+11.3%) and higher acceleration of import growth than that of exports (+22.5%) in 2010, with net exports dragging down overall GDP growth by -2.8%. Domestic demand will be a key stimulus that will help push the economy next year. Easing monetary and fiscal conditions will support a growth of gross investment by 10.6%. The SP2 is another catalyst to boost households and business sentiment. Private consumption is expected to strongly expand by 3.1% (after it is expected to shrink by -1.2% in 2009) with recovery in farm income as prices of agricultural products rise, continuously decreasing unemployment rates, and a subdue inflationary threat. However, political stability is the biggest concern to Thailand's economy ahead as instability can impede the recovery in addition to the sluggish global expansion.

On inflation, we believe that pressure pushing up price levels is still accommodative. The headline and core inflation are expected to inflate by 3.3% and 2.2%, respectively, based on the average oil price assumption of US$84/bbl. Thus, the appropriate policy rate for 2010 should be at 2.25% to balance economic growth and price stability, and there is still possibility that the rate will touch 2.50% if the recovery of the global economy is stronger than our expectation. The timing for the first rate hike is likely in the late first quarter of 2010, consistent with the region. Meanwhile commercial bank interest rates are expected to rise in smaller proportion than the policy rate, and the timing of the adjustment will be different depending on each bank's liquidity.

Looking forward, U.S. dollar depreciation will set the direction of the Thai Baht, even as the trade balance falls from a surplus of US$18.3 billion in 2009 to an estimated US$5.7 billion for 2010. We still forecast the Thai Baht to appreciate against the greenback and to be at Bt32.05/US$ at the end of next year. For the next twelve months, the Baht should swing in the range of Bt30-36.7/US$.

Overall economic activity in 2011 will be driven by government investment spending, especially the SP2 which is expected to contribute to an expansion of consumption and investment by 3.9% and 8.4%, respectively as well as push GDP to expand by 4.5% in 2011. We expect to see continuous flows of government economic stimulus as a result cash balance (on-budget balance plus off-budget balance) will still continue to be in a deficit (- 3.5% of GDP from -6.6% in 2010) while the policy rate is expected to be at 3.00% as economic expansion starts bringing a rise in inflation. We foresee headline and core inflation to expand at 3.5% and 2.5%, respectively.

Investment Strategy

In the third quarter we didn't expect the market to pass the 650 level but liquidity in the regional markets finally pushed the market to 750 in early October. While we thought that the market was expensive, third quarter earnings were announced and beat expectations. We expect earnings momentum to continue and eventually return market valuation back to normal levels so that we have less concern over the expensiveness of the market. In the third quarter and year-to-date, portfolio performance lagged the benchmark by about 6%. The Fund's cash level is between 7-10% for the time being.

The ten largest equity classifications of the Fund held at September 30, 2009 were:

                                                            Percentage of
Industry                                                      Net Assets
                                                            --------------

1.  Energy                                                        23.59%
2.  Banks                                                         20.60
3.  Commerce                                                       9.21
4   Communication                                                  6.46
5.  Property Development*                                          4.81
6.  Food & Beverage                                                4.54
7.  Finance & Securities                                           4.47
8.  Media & Publishing                                             4.33
9.  Health Care Services                                           3.51
10. Petrochemicals                                                 2.50

*Includes the value of warrants.

The ten largest equity positions held by the Fund at September 30, 2009 were:

                                                            Percentage of
Issue                                                         Net Assets
                                                            --------------

1.  Kasikornbank Public Co., Ltd                                   9.30%
2.  PTT Public Co., Ltd                                            8.86
3.  PTT Exploration and Production Public Co., Ltd                 8.30
4.  CP ALL Public Co., Ltd                                         5.03
5.  Advanced Info Service Public Co., Ltd                          4.83
6.  PTT Aromatics & Refining Public Co., Ltd                       4.48
7.  Thanachart Capital Public Co., Ltd                             4.47
8.  Bank of Ayudhya Public Co., Ltd                                4.17
9.  Bangkok Bank Public Co., Ltd                                   3.95
10. Bangkok Chain Hospital Public Co., Ltd                         3.51

QUARTERLY RESULTS OF OPERATIONS*

                                      Net Realized
                                      And Unrealized
                                     Gains (Losses) on     Net Increase
                                      Investments and   (Decrease) in Net
For the Quarter      Net Investment  Foreign Currency    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)
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
                     ------- ------- --------  -------  --------  --------

For the Nine Months
 Ended September
 30, 2009            $   476 $  0.15 $ 12,043  $  3.80  $ 12,519  $   3.95
                     ======= ======= ========  =======  ========  ========

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 Ended      Net Asset          Market        Share
                             Value            Price**       Volume**
                        ---------------   --------------    ------

                         High      Low     High     Low     (000's)
                        ------   ------   ------  ------    ------
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

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 Amex Equities, formerly the American Stock
Exchange, LLC.

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