SOURCE: Thai Capital Fund

Thai Capital Fund

November 22, 2010 11:15 ET

The Thai Capital Fund Reports Third Quarter Earnings

JERSEY CITY, NJ--(Marketwire - November 22, 2010) - 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 September 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.

Third Quarter Earnings Results

For the quarter ended September 30, 2010, the Fund earned net investment income of U.S. $260,000 (equivalent to income of U.S. $0.08 per share), resulting in net investment income for the nine months ended September 30, 2010 of approximately U.S. $888,000 (equivalent to income of U.S. $0.28 per share). Net realized and unrealized gains from investment activities and foreign currency transactions for the quarter ended September 30, 2010 were approximately U.S. $12,991,000 (equivalent to a gain of U.S. $4.12 per share). As a result, the net realized and unrealized gains for the nine months ended September 30, 2010 were approximately U.S. $17,232,000 (equivalent to a gain of U.S. $5.46 per share).

In comparison, 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).

On September 30, 2010, the total net assets of the Fund were approximately U.S. $55.1 million. The net asset value ("NAV") per share on that date was U.S. $17.36, based on 3,172,313 shares outstanding. In comparison, on September 30, 2009, total net assets were approximately U.S. $35.7 million. The NAV per share on that date was U.S. $11.27, based on 3,167,316 shares outstanding. The Fund generated an investment return of 49.40% for the nine months ended September 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 45.69% during the same period, in U.S. dollar terms.

As of September 30, 2010, the Fund had 98.78% of its net assets invested in Thai equities and 2.93% in Thai cash instruments. The remaining assets were made up of 0.36% in short-term U.S. dollar time deposits and liabilities in excess of other assets of (2.07).

As of November 18, 2010, the Fund had total net assets of approximately U.S. $57.3 million, equivalent to a NAV per share of U.S. $18.07. On that same date, the Fund's shares on the NYSE Amex closed at U.S. $16.20, representing a trading discount of 10.35% to its NAV per share.

Third Quarter Market Review

For the quarter ended September 30, 2010 the SET Index increased 177.99 points, or 22.32% from the June 30, 2010 close of 975.30. The main factor that drove the market on a continuous uptrend was capital inflow into the Thai market, attracted by the strong economy and foreign exchange rates.

In July 2010, the Thai market performed well, driven by optimism for the local economic outlook, evidenced by various GDP upgrades, and bargain hunting in earnings results of domestic economy related stocks, led by the Information and Communications Technologies ("ICT") and Bank sectors. On the external side, a more stabilized situation in Europe and better than expected EU stress test results helped offset a series of weak U.S. economic data. For the month, the SET Index was up 58.52 points, or 7.34%, to close at 855.83. Trading was active with daily average turnover of Bt30 billion. Foreign investors net bought Bt6.9 billion.

In August 2010, the SET Index posted a spectacular performance, rising 57.36 points, or 6.70%, to 913.19. Major factors were 1) political stability amid passing of the 2011 budget by the lower house and a smooth reshuffle of the Thai army chief and police chief; and 2) easing regulatory concerns as the bidding on 3G licenses had a more concrete schedule. Those factors supported the return of foreign equity net buying of Bt16 billion. Trading was also very active with daily average turnover of Bt36.3 billion.

In September 2010, the Thai market remained bullish, given upbeat Asian economic data and the appreciation of the Thai Baht against the U.S. Dollar which drove foreign inflows. There was some degree of turbulence in the month as the strong rally of Thai Baht led to rumors about measures to control capital flows. However, the Bank of Thailand and the Ministry of Finance quickly quashed the rumors, so the pace of Thai Baht appreciation and the equity rally were even more obvious. The SET Index closed at 975.30 points, rising by 6.8% with hefty daily average turnover of Bt40.5 billion and foreign investors net buying Bt36 billion.

Market Outlook and Investment Strategy

After enjoying a robust recovery from the latter part of 2009 into early 2010, the global economy is slowing as the impact of fiscal stimulus and inventory rebuilding fades. U.S. GDP growth is expected to decelerate to an annualized pace of 2.0-2.5% and global growth is expected to be around 3.5% in 2011. The Fed is likely to act aggressively to ensure U.S. growth remains above a trend rate of 2.0% to avoid a potential deflationary spiral. The announcement of further preemptive quantitative easing has been foreseen before year-end, which combined with the diminished supply of Treasury paper, is likely to temporarily push the U.S. 10-year yield down towards a multi-decade low of 2.0%.

For internal factors, the Map Ta Puth issue has cleared out after the Central Administrative Court verdict to lift the operating license on only two out of 76 halted projects and finally the harmful list has been approved and issued as a law. That was well beyond market expectations. There were also some threats to the market from the ICT sector. After a long battle between NTC and the government, NTC lost and the Thai people will have to wait for 3G service. The Supreme Administrative Court has ordered NTC to halt the 3G license auction after a suit was brought by CAT management. Big players in the telecommunication sector, TRUE, ADVANC and DTAC, plunged as a consequence.

Thai Baht strength was also one of the hot issues in September, when the market speculated that the Bank of Thailand might impose strong measures to curb the strong Baht; as a result, stocks retreated for awhile. However, right after the Bank of Thailand governor made strong comments that the Thai Baht movements had been well controlled, the index turned back to bullish mode once again along with net buying from foreign investors which totaled Bt.36 billion in September.

The soft patch for Thai economic data seen in July was widely anticipated and this weak trend is also expected for economic data for August. This should partly reflect the high base effect from last year, unwinding of economic stimulus packages and the receding momentum from inventory rebuilding. In addition risks to the global economic outlook and renewed domestic political unrest are ongoing concerns. Nonetheless, the Thai economy is in the process of making a decisive shift towards domestic-driven growth prompted by fiscal stimulus packages and this should stimulate higher private sector investment. These domestic factors should largely offset the adverse effects of the expected slowdown of external demand during the second half of 2010 and next year.

Thailand's current account surplus is one of the factors pushing up the Baht and it should act as a buffer against potential volatility in capital flows, but additional quantitative easing ("QE") measures by the U.S. Fed could contribute to U.S. dollar weakness, while normalization of monetary policies and capital inflows to faster-growing regional economies are also likely to support the local currency. The Thai Baht is expected to continue the appreciation trend in months ahead to around Bt29.9 per US$1 at year-end.

In terms of valuation based on forecasted average EPS growth for 2010 of 25.7%, the Thai stock market is trading on price-to-earnings ("PER") for 2010 of 14x, PER for 2011 of 12x and price-to book value ("P/BV") of 1.9x with a dividend yield of 3.3% (Source: Bloomberg forecast as of 9/30/2010). At this Index level, the probability of a temporary market consolidation has increased and tactical positioning in the Thai market should be considered accordingly. The market pullback will be considered as a buying opportunity. However, the Index is likely to reach 1,000 pts by mid-2011, given strong Thai economic growth and continuous foreign fund inflow driving big cap stocks up.

The market index passed above 900, as expected, with strong capital inflow for support. In the last week of September, the Index stayed above 950 as well. We still maintain our alpha model with some minor changes. We may focus more on medium to large-cap stocks due to expectation for more capital inflows into the Thai market. As a percentage of market cap, foreign flow to the Thai stock market is smaller than other regional markets, because most of the capital flows into Thailand are invested in the bond market. Along with Thai Bath appreciation, we still expect new money into the market or existing foreign capital shifting from the bond market to the equity market. The Fund's cash level may swing between 2 and 6% due to switching of investments in the equity portion. However, we do not expect to engage in tactical asset allocation (cash/equity) since all technical signs still indicate a bullish trend. Short term, the target for the Index is around 1,030 - 1,060 for the year-end but we do not expect the Index to sustain above the 1,000 level until there are actual earnings to support it, which we do not think will occur until at least the middle of next year.

The ten largest equity classifications of the Fund held at
September 30, 2010 were:

Industry                                                        Net Assets
-------------------------------------------------               ----------

1.  Energy                                                           20.60%
2.  Construction                                                     16.50
3.  Banks                                                            12.44
4.  Petrochemicals                                                   11.24
5.  Property Development                                             10.13
6.  Communication                                                     6.54
7.  Electronic Components                                             6.18
8.  Transportation                                                    4.24
9.  Entertainment & Recreation                                        3.43
10. Agribusiness                                                      2.69

The ten largest equity positions held by the Fund at September 30, 2010

Issue                                                           Net Assets
-------------------------------------------------               ----------

1.  PTT Public Co., Ltd                                              10.05%
2.  The Siam Cement Public Co., Ltd                                   8.18
3.  PTT Chemical Public Co., Ltd                                      7.14
4.  Siamgas & Petrochemicals Public Co., Ltd                          4.47
5.  Bangkok Bank Public Co., Ltd                                      4.25
6.  Airports of Thailand Public Co., Ltd                              4.24
7.  Dynasty Ceramic Public Co., Ltd                                   4.16
8.  Vanachai Group Public Co., Ltd                                    4.15
9.  IRPC Public Co., Ltd                                              4.10
10. Kasikornbank Public Co., Ltd                                      4.10


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

For the Nine
 Months Ended
 September 30,
 2010           $    888  $   0.28  $ 17,232  $   5.46  $ 18,120  $   5.74
                ========  ========  ========  ========  ========  ========

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**    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
September 30, 2010            17.36     13.16     15.18     10.61       351

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.

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