SOURCE: Thai Capital Fund

Thai Capital Fund

August 16, 2011 10:46 ET

The Thai Capital Fund Reports Second Quarter Earnings

JERSEY CITY, NJ--(Marketwire - Aug 16, 2011) - The Thai Capital Fund, Inc. (the "Fund") (NYSE Amex: TF), 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 June 30, 2011 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.

Second Quarter Earnings Results

For the quarter ended March 31, 2011, the Fund earned net investment income of U.S. $347,000 (equivalent to income of U.S. $0.10 per share) resulting in net investment income for the six months ended June 30, 2011 of approximately U.S. $423,000 (equivalent to income of U.S. $0.12 per share). Net realized and unrealized losses from investment activities and foreign currency transactions for the quarter ended June 30, 2011 were approximately U.S. $2,952,000 (equivalent to a loss of U.S. $0.86 per share). As a result, the net realized and unrealized losses for the six months ended June 30, 2011 were approximately U.S. $4,686,000 (equivalent to a loss of U.S. $1.36 per share).

In comparison, 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).

On June 30, 2011, the total net assets of the Fund were approximately U.S. $38.9 million. The net asset value ("NAV") per share on that date was U.S. $10.90, based on 3,564,814 shares outstanding. In comparison, on June 30, 2010, total net assets were approximately U.S. $41.7 million. The NAV per share on that date was U.S. $13.16, based on 3,172,313 shares outstanding. Assuming the reinvestment of the U.S. $2.70 per share dividend paid on June 23, 2011, the Fund generated a negative investment return of 5.68% for the six months ended June 30, 2011, when measured against the NAV per share of U.S. $14.89 calculated on December 31, 2010. In comparison, the Stock Exchange of Thailand ("SET") Index decreased 1.11% during the same period, in U.S. dollar terms.

As of June 30, 2011, the Fund had 98.43% of its net assets invested in Thai equities and 3.32% 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 negative 2.44%.

As of August 11, 2011, the Fund had total net assets of approximately U.S. $39.4 million, equivalent to a NAV per share of U.S. $11.05. On that same date, the closing price for the Fund's shares on the NYSE Amex was U.S. $9.93, representing a trading discount of 10.14% to its NAV per share.

Second Quarter Market Review & Outlook

In April 2011, the SET Index posted a favorable rise, driven by continued foreign equity inflows and stronger than expected results from the financial sector. The major theme in April was the new round of U.S. dollar weakness following the difference in degree of monetary loosening between the United States and Eurozone. As the impact of global risks like the Japanese crisis and European rating downgrades was minimal, U.S. dollar weakness drove across-the-board flows to Asian markets.

In May 2011, the movement of the SET Index was extremely volatile before closing slightly lower than the previous month. External factors were negative for most of the month as concerns about Greece's mounting debt and the weak momentum of U.S. economic data triggered foreign outflows. However, there were some periods of rebound, driven by first quarter 2011 earnings speculation and the announcement of the dissolution of the Thai parliament on May 10, 2011. Overall sentiment turned more cautious during the last week of May as the SET Index had already priced in optimism surrounding the election and strong earnings results.

In June 2011, the SET Index moved down in response to both internal and external risk factors. External risk factors included a slowdown in global economic growth accompanied by higher than expected inflation and the sovereign debt crisis in Greece that threatened to engulf the European banking system after Standard & Poor's Rating Services ("S&P") and Moody's Investor Service cut Greece's rating to junk status and warned of a possible downgrade of French and Italian bank ratings in response to the high probability of Greece's default risk. Internal factors included political issues, with the general election scheduled for July 3, 2011, ushering in uncertainty over the future direction of the country, particularly after polls began to show that the Phue Thai Party was heading towards a strong win over the Democrats. This was not expected by foreign investors, who are very sensitive to potential changes in policy direction when a new party takes the helm of government. These factors caused foreign investors to become bearish toward the Thai stock market in June 2011.

Investors viewed the landslide victory of the Phue Thai Party in the election positively as it provided stability to the Thai government. The Thai market is expected to respond positively to the political developments in the early part of July 2011. Foreign investors have been expected to cover short positions in response to the reduced political risk after their earlier sell-off. Meanwhile, the passage by Greece's parliament of austerity measures that will allow it to avail itself of the bailout money provided by the European Union and the International Monetary Fund is also expected to have a positive impact. This might trigger increased profit taking in the short-term once all of the positive news has been priced in.

Even though Greece can now access new loans to stave off the debt default, credit ratings agencies are not happy with its debt profile. S&P may consider the conversion of debt to long-term bonds as "selective default" and thus the European sovereign debt crisis is not nearly solved, and contagion throughout the EU banking system is still a concern.

After its landslide victory, the Phue Thai Party should begin to take action on their campaign promises as soon as they set up their government, which by law, must be formed within 60 days. Local and foreign investors are thus likely to be looking closely at the new government's policies, particularly the populist policies such as an increase in the minimum daily wage and a cut in corporate taxes, since both have the power to significantly affect the earnings of listed companies. The pro-growth policies are expected to impact the macro economy by raising inflation risk and weaken the fiscal budget if the government does not take care to ensure that spending does not overwhelm revenue. This uncertainty could again raise the caution flag for foreign investors and curtail their re-entry into the Thai stock market.

In terms of valuation, based on forecasted earnings per share growth of 18.3% in 2011, the Thai stock market is trading on a price-to-earnings ratio for 2011 of 12x and a price-to-book value ratio of 1.9x with dividend yield of 3.7% (Source: Bloomberg forecast as of 6/30/2011).

Following a sharp rebound in the SET Index which increased to near 1100 points after the general election in Thailand, we expect a consolidation of the market in the near future. In the longer run, with both improving internal and external market conditions, we still see a positive outlook for the Thai stock market. However, as domestic factors are expected to be somewhat stronger than external market conditions we expect that domestic consumption sectors will outperform external-related sectors, such as commodities.

The equity classifications of the Fund held at June 30, 2011 were:

Industry Percentage of Net Assets
1. Energy 19.87%
2. Banks 19.12
3. Petrochemicals 18.30
4. Property Development 12.66
5. Food and Beverage 9.68
6. Construction 9.44
7. Commerce 3.62
8. Health Care Services 3.29
9. Transportation 2.45

The ten largest equity positions held by the Fund at June 30, 2011 were:

Issue Percentage of Net Assets
1. Charoen Pokphand Foods Public Co., Ltd 9.68%
2. The Siam Cement Public Co., Ltd 8.25
3. Indorama Ventures Public Co., Ltd 7.27
4. PTT Chemical Public Co., Ltd 6.74
5. PTT Public Co., Ltd 6.72
6. Krung Thai Bank Public Co., Ltd 5.29
7. Bangkok Bank Public Co., Ltd 4.99
8. Kasikornbank Public Co., Ltd 4.64
9. Thai Oil Public Co., Ltd 4.45
10. Banpu Public Co., Ltd 4.39

QUARTERLY RESULTS OF OPERATIONS*

For the Quarter Ended Net Investment Income (Loss)* Net Realized And Unrealized Gains (Losses) on Investments and Foreign Currency Transactions* Net Increase (Decrease) in Net Assets Resulting From Operations
Total
(000's)
Per
Share
Total
(000's)
Per
Share
Total
(000's)
Per
Share
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 )
For the Six Months Ended June 30, 2011 $ 423 $ 0.12 $ (4,686 ) $ (1.36 ) $ (4,263 ) $ (1.24 )
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
September 30, 2010 260 0.08 12,991 4.12 13,251 4.20
December 31, 2010 (67 ) (0.02 ) 2,457 0.74 2,390 0.72
For the Year Ended December 31, 2010 $ 821 $ 0.26 $ 19,689 $ 6.20 $ 20,510 $ 6.46
PER SHARE SELECTED QUARTERLY FINANCIAL DATA

For the Quarter Ended
Net Asset
Value
Market
Price**
Share
Volume**
High Low High Low (000's)
March 31, 2011 $ 15.12 $ 13.15 $ 14.00 $ 11.22 301
June 30, 2011 15.33 10.77 13.31 9.08 141
March 31, 2010 $ 12.84 $ 10.92 $ 10.82 $ 8.65 180
June 30, 2010 13.22 12.28 11.30 9.80 193
September 30, 2010 17.36 13.16 15.18 10.61 351
December 31, 2010 18.60 14.77 17.38 12.75 510
* Net of Thai withholding tax.
** As reported on the NYSE Amex.

Contact Information

  • Contact:
    John J. O'Keefe
    Telephone: (800) 933-3440
    (201) 915-3054
    www.daiwast.com
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