SOURCE: Thai Capital Fund

August 30, 2010 12:15 ET

The Thai Capital Fund Reports Second Quarter Earnings

JERSEY CITY, NJ--(Marketwire - August 30, 2010) -  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 June 30, 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.

Second Quarter Earnings Results

For the quarter ended June 30, 2010, the Fund earned net investment income of U.S. $506,000 (equivalent to income of U.S. $0.16 per share), resulting in net investment income for the six months ended June 30, 2010 of approximately U.S. $628,000 (equivalent to income of U.S. $0.20 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended June 30, 2010 were approximately U.S. $506,000 (equivalent to a gain of U.S. $0.16 per share). As a result, the net realized and unrealized gains for the six months ended June 30, 2010 were approximately U.S. $4,241,000 (equivalent to a gain of U.S. $1.34 per share).

In comparison, for the quarter ended June 30, 2008, the Fund earned net investment income of U.S. $326,000 (equivalent to income of U.S. $0.10 per share), resulting in net investment income for the six months ended June 30, 2009 of approximately U.S. $392,000 (equivalent to income of U.S. $0.12 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended June 30, 2009 were approximately U.S. $8,444,000 (equivalent to a gain of U.S. $2.67 per share). As a result, the net realized and unrealized gains for the six months ended June 30, 2009 were approximately U.S. $7,469,000 (equivalent to a gain of U.S. $2.36 per share).

On June 30, 2010, the total net assets of the Fund were approximately U.S. $41.7 million. The net asset value ("NAV") per share on that date was U.S. $13.16, based on 3,172,313 shares outstanding. In comparison, on June 30, 2009, total net assets were approximately U.S. $31.1 million. The NAV per share on that date was U.S. $9.80, based on 3,167,316 shares outstanding. The Fund generated an investment return of 13.25% for the six months ended June 30, 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 11.64% during the same period, in U.S. dollar terms.

As of June 30, 2010, the Fund had 96.34% of its net assets invested in Thai equities and 5.81% in Thai cash instruments. The remaining assets were made up of 0.69% in short-term U.S. dollar time deposits and liabilities in excess of other assets of (2.84)%. 

As of August 26, 2010, the Fund had total net assets of approximately U.S. $48.9 million, equivalent to a NAV per share of U.S. $15.42. On that same date, the Fund's shares on the NYSE Amex closed at U.S. $12.90, representing a trading discount of 16.34% to its NAV per share.

Second Quarter Market Review and Market Outlook

For the first half of 2010, the SET Index increased 62.77 points, or 8.55%, to close at 797.31. In April 2010, the Thai market was dominated by the local political standoff. The declaration of an emergency in Bangkok on April 7, and the deadly clash on April 10, were behind the sharp sell-off during the middle of the month. However, the market recovered slightly during the last week of April as the feared dispersion of the rally never materialized.

The Thai market corrected in May 2010. The worsening debt crisis in Europe triggered foreign selling and the selling spree was then aggravated by increased local political tension, which peaked on May 19, when the military crackdown ended with widespread disruption in downtown Bangkok. The market, however, began to recover during the last few days of the month. 

The Thai market continued its recovery in June 2010. Local politics became more stable after the crackdown in May, while the impact on the domestic economy remained limited. External economic situations were still of concern, but the impact on the Thai market was limited as foreign investors had small positions in Thai stocks. From concerns over a dimmer prospect for global economic recovery, investors pulled back from risky assets and then turned to safe havens as the U.S. 10-year treasury yield hit its lowest level since April 2009. Downside risks appear to have risen due to a significant deterioration of financial conditions including growing concerns about sovereign risk and the fragility of the banking sector in Europe. Recent economic indicators of many countries have been less encouraging as well. Another major development was in China, where the Public Bank of China (PBOC) decided to increase flexibility in its Chinese Renminbi ("RMB") by allowing the RMB/USD rate to swing by 0.5% around the daily fixing rate (the middle rate). The impact of 3-4% annual RMB appreciation on the economy includes 0.2% lower GDP growth, and 0.7% lower export volume growth. However, RMB appreciation is most negative for shipping, electronic components, and computers, while the least affected sectors are utility, agriculture, financial and food and beverage. Nevertheless, RMB reform is a long-term positive for consumption. Over the next five years, several structural changes, including RMB appreciation and acceleration of wage inflation, should boost consumption by 6.5%, cumulatively, and reduce exports by 11%, cumulatively, compared with the baseline.

On concerns over the possibility of a "double-dip recession", there are several reasons why we believe it is unlikely. Moves toward fiscal policy tightening generally appear to be relatively measured. This year, the Euro area and China are likely to run somewhat expansionary fiscal policies while others are likely to begin some fiscal restraint. Next year, almost all countries are likely to tighten fiscal policy, but the contraction of fiscal impulse is likely to be modest in most cases. While fiscal policy is tightened, monetary policy is likely to remain expansionary. Earlier expectations of an exit from the low interest rate and non-standard monetary policy have been shifted well into 2011. With discretionary spending on durables and structures already having fallen to recent historical lows, this key driver of economic downturns has much less room to be compressed than it did before the crisis began. Indeed, this is one reason double dip recessions are so rare. The longer such spending is compressed, the more pent-up demand builds to support the eventual expansion. Durable goods that have worn out eventually need to be replaced. With pent-up demand beginning to show through consumer and business spending, we believe the economy is developing sufficient momentum through 2010 to deflect the upcoming headwinds to a significant degree. A positive feedback loop between investment, employment, and consumption seems to have emerged in most major countries.

Thai's economic recovery remains on track in our view despite the political turmoil. GDP growth of 12% y-o-y in the first quarter exceeded expectations and the full-year growth figure is likely to be revised up to 5%. The key assumptions underlying the expectation are continuous merchandise export growth of over 20%, private sector spending recovery after the political unrest and government-spending growth driven by a higher than expected rise in public consumption in the first quarter of 2010.

Based on forecasted average earnings-per-share growth for 2010 of 24.7%, the Thai stock market is trading on price-to-earnings for 2010 of 11.6x and price-to-book value of 1.6x with a dividend yield of 3.9% (Source: Bloomberg forecast as of 6/30/10). Large growth is expected to be coming from big-cap stocks, especially in the construction material and petrochemical sectors from capacity expansion in the Map Ta Put area. In addition, the return of tourists, assuming no political unrest, will benefit the tourism and service sectors.

External risks will be the most critical factors driving global equity markets. An upcoming event will be the result of stress tests of banks in the EU area which are expected to be announced during the second half of July. The next thing to watch are the set of key economic leading indicators i.e. Chinese PMI, US-ISM, and unemployment data. However, the SET Index is not likely to fall lower than its critical resistance level of 750 for the next couple of months even with global uncertainties. On the other hand, political uncertainties will still be the risk that could trigger an immediate sell off if there are signs of political violence as evidenced over the last couple of months.

The market is expected to move sideways to upward with a limit in this quarter around 850 or around 3-4% potential gain. For year-end target if regional markets rally, the Thai market could move to an upper range of the P/E band which would place the SET Index around 900-920.

The ten largest equity classifications of the Fund held at June 30, 2010 were:  
Industry   Percentage of Net Assets  
1. Energy   22.63 %
2. Property Development   20.06  
3. Banks   10.42  
4. Petrochemicals   10.18  
5. Construction   8.67  
6. Electronic Components   8.37  
7. Transportation   4.01  
8. Entertainment & Recreation   3.04  
9. Agribusiness   2.74  
10. Commerce   2.40  
The ten largest equity positions held by the Fund at June 30, 2010 were:  
Issue   Percentage of Net Assets  
1. PTT Public Co., Ltd   10.43 %
2. PTT Chemical Public Co., Ltd   6.96  
3. PTT Exploration and Production Public Co., Ltd   6.60  
4. Amata Corporation Public Co., Ltd   4.35  
5. Dynasty Ceramic Public Co., Ltd   4.34  
6. The Siam Cement Public Co., Ltd   4.32  
7. Cal-Comp Electronics (Thailand) Public Co., Ltd   4.22  
8. Delta Electronics (Thailand) Public Co., Ltd   4.14  
9. Bank of Ayudhya Public Co., Ltd   4.12  
10. Airports of Thailand Public Co., Ltd   4.01  
          Net Realized        
          And Unrealized     Net Increase  
    Net     Gains (Losses) on     (Decrease) in  
    Investment     Investments and Foreign     Net Assets Resulting  
For the Quarter Ended   Income (Loss)*     Currency Transactions*     From Operations  
    Total (000's)     Per Share     Total (000's)     Per Share     Total (000's)     Per Share  
March 31, 2010   $ 122     $ 0.04     $ 3,735     $ 1.18     $ 3,857     $ 1.22  
June 30, 2010     506       0.16       506       0.16       1,012       0.32  
For the Six Months Ended June 30, 2010   $ 628     $ 0.20     $ 4,241     $ 1.34     $ 4,869     $ 1.54  
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  
For the Quarter Ended   Net Asset Value   Market Price**     Share Volume**
    High   Low   High   Low     (000's)
March 31, 2010   $ 12.84   $ 10.92   $ 10.82   $ 8.65     180
June 30, 2010     13.22     12.28     11.30     9.80     193
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 Amex, formerly the American Stock Exchange, LLC.

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