Thailand - Take 2 : 2 Closed-End Funds And 2 Stocks

by: Far Horizon

I recently wrote an article analyzing opportunities in Thailand, linked here, which was widely read, and generated a number of questions from readers. As mentioned in that article, I plan to develop a series of articles on emerging markets, however, have decided to close the loop on the Thai article, and address some of these questions first.

Exchange rate risk and tax

Firstly, at the fundamental level, what are the macro and tax risks in investing in Thai stocks? Thailand has a 10% withholding tax on dividends paid to overseas residents. There is a bilateral tax treaty between the U.S. and Thailand, the details of which are well explained on the IRS website. Any investor should, of course, seek professional tax advice specific to their own circumstances.

Exchange rate risk has to be actively managed. The Thai Baht has been appreciating against the greenback in recent years.

US Dollar to Thai Baht Exchange Rate Chart

US Dollar to Thai Baht Exchange Rate data by YCharts

QE and other impacts make the outlook for the U.S. somewhat volatile, while as I explored in the original article, Thailand is subject to some fiscal and inflationary headwinds. A portfolio with a significant currency risk should actively manage this risk, either via allocation, or hedging. With the potential for central bank impacts to exacerbate currency fluctuation, for my own portfolio I seek some currency diversification via unhedged international exposures. Note that I am not based in the U.S.

Comparison of THD and closed end funds.

The first question is whether closed-end funds offer an alternative to the Thailand ETF (NYSEARCA:THD).

There are two major closed-end funds focused on Thailand, The Thai Fund (NYSE:TTF) and Thai Capital Fund (NYSEMKT:TF-OLD).

The chart below shows the relative performance of these funds to THD over five years.

TTF Chart

TTF data by YCharts

TTF has certainly outperformed the broader THD by a healthy margin, but TF has underperformed. Both funds trade at a discount to NAV, with TTF offering significantly more value. TF however, has a much stronger dividend payment basis, with a 5% higher yield than TTF, which partially closes the gap on a total return basis.



Div yield ttm



Disc NAV



Expense Ratio



Source - Bloomberg

There is limited published data on the funds' holdings, but a comparison of the top 10 holdings of each is available, and gives a flavor of the sector allocation :

TTF Top Holdings

TF Top Holdings

CP All


PTT Public Co Ltd


Advance Inf


Bangkok Bank Public Co Ltd


Siam Comm bank


Advanced Info Service Public


Bangkok bank


Charoen Pokphand Foods


Ch Kamchang


Kasikornbank Public Co Ltd


Big C


PTT Expl. & Prod. Public Co


Sino Thai Engineering


Thai All Public Co Ltd


Siam Makro


Krung Thai Bank Public Co Ltd


Asian Property


PTT Global Chemical Public


Aeon Thana


Siam Cement Public Co Ltd




Source - Bloomberg

TTF has a stronger focus on retail food sales, with Siam Makro, CP All, and Big C (supermarkets) making up nearly 20% of the fund holdings. Other significant sectors are finance (16.25%) construction/development (12%), and a 9.4% holding of Advance, an IT service provider.

Advance also appears on TF's top 10, but the fund holdings show a heavier weighting to finance and energy stocks, which is closer to the THD weightings in these sectors. TF does hold CP Foods and Siam Cement - two stocks I had selected (more on CP below). As mentioned in my previous article, there are some potential issues in Thai banking and energy stocks' future performance prospects.

On balance, from a historical performance and sector allocation basis, TTF seems more attractive. TF is way ahead on dividend payouts, but this is reflective of the higher risk profile.

Charoen Popkhand Foods (OTCPK:CPOKY)

My first article identified Charoen Popkhand Foods as a stock to watch. The stock is listed on the Stock Exchange of Thailand, but an ADR trades in the U.S. - a reader asked for more detail.

I include a brief introduction from my article :

"Agribusiness/Food - with massive population growth in the Asian region, agriculture and food production business has a guaranteed future demand. Charoen Popkhand Group is a Thai-based business which has built a global presence in this sector. CP is helmed by Dhanin Chearavanont, Thailand's answer to Warren Buffett.

The group started as an animal feed and milling business, but has successfully integrated horizontally, into aquaculture, farming, and prepared food production, and globally, with investments throughout the region, as Charoen Popkhand Food (CPF: TB). CPF had, until Q3 2012, posted a track record of consistent growth in sales, earnings and margins. The 3rd quarter result shows a significant growth in sales, lead by overseas sales, but a reduction in EBITDA margin from 10% to 6.7%, with an expectation of an absolute reduction in EBITDA for the 2012 full year. The company attributes this to reduced market prices for food, and increased feed production costs as a result of the US drought. The market has priced this in, with a reduction from the peak near Bht 42 (U.S. $1.41) to the current price of Bht 33 (U.S. $1.10), which represents a ttm P/E multiple of 11 and 19.9 times full-year 2012 earnings. The company is well positioned throughout the region, and is investing heavily in China, Indochina, Indonesia, and other key growth markets.

The CP group also owns the Thai franchise for 7-11 stores (CP All) and is in the process of buying HSBC's shareholding in Ping An Insurance of China. The logic for the latter is unclear, but the CP business model has been one of leveraging integration. At no cost to the CPF shareholder, there is the potential benefit of a distribution enhancement or other synergies in China arising from the Ping An acquisition.

Until the full-year 2012 earnings are available, with further outlook guidance on future margins, I will not initiate a position in CPF. However, if the stock is available at a P/E multiple of around 12 times 2013 forecast earnings, and the dividend yield of over 3% is maintained, I will be long CPF."

The 2012 results are now available on its website

A summary of the key numbers :

Charoen Popkhand Foods

Key Performance Figures





THB '000












Net Profit




NP Margin
















Book Value PS











Div PS




Share price



The full-year results at face value show a significant improvement on the 3rd Quarter, with a 19% increase in net profits year on year, and 7% growth in earnings per share. The details however uncover some exceptional items. According to analysis by local broker Bualuang Securities:

"Stripping out extra items-a Bt28m FX gain and a Bt1.9bn after-tax gain from trading CPALL shares-the firm posted a Bt1.7bn core loss (against a Bt1.5bn 4Q11 core profit and a Bt1.6bn 3Q12 core profit)."

The impact of unexpected influences needs also to be considered. A key factor here is the influence of Soybean prices. Soybeans are a key ingredient to feed for CP, and the poor 2012 results were heavily attributed to the U.S. drought and the flow though to input costs. According to research the U.S. has a 36% market share. Soybean (SGSD) peaked in fall 2012 at 700, and has now reverted to 582, close to pre-drought levels.

^SGSD Chart

^SGSD data by YCharts

As much of this price impact would have been buffered by the stronger Thai baht, it is reasonable to view SGSD price volatility and FX as partially offsetting exposures for CP.

Management predicts a strong recovery in 2013, led by a reduction in Soybean prices, increased demand, and growth drivers in the Indian and Vietnamese markets. Recovery is expected to be driven by strong sales growth and increased margins. As argued above, the sector has massive long-term growth potential, and the CP group has built a very strong regional franchise.

With a forward p/e of 15, and PEG ratio of 0.44, the stock represents reasonable value. Price to book has dropped to 2x from 3.6x a year ago. The dividend yield of 3.4% supports the case. Dividend growth investors will be impressed by the five-year dividend growth of 123%.

I believe that the long-term investment opportunity for the stock is a strong one, and the current price level represents a good entry point.

Local Telcom stock

Lastly, a reader suggested a telcom stock might be an interesting play on the market.

The sector has been very challenging, with a state owned market leader presenting an uphill battle for private competitors. Poor infrastructure has meant that telcos have had to invest heavily in operations, and this has created significant earnings drain. TT&T, one of the top three players, with a landline business saw debt problems drive it to operating losses of Bht 12.2bn in 2010, Bht 2.68bn in 2011, and Bht 7.6bn in 2012. Revenues in 2012 were Bht 2.35n. The shares are currently suspended on the Stock Exchange of Thailand.

CP subsidiary True Corporation has made losses of Bht 5.22bn over the last four years, with losses in 2009 and 2012. True has a diversified business, which spans mobile, broadband and pay TV - the long-term potential could be there for a patient investor. In my opinion, there are lower risk sectors that offer a safer return. I will not be looking further into Thai telecom stocks for the time being.

The bottom line.

This further review has refined my assessment of the market opportunities. I lean toward a high weighting to CPOKY, underweight on THD, and making up to a marketweight position via TTF. My rationale here is that the sector allocation of TTF is more attractive than THD (lower financials, higher retail food distribution.) This also steers me more toward TTF than TF.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TTF, THD, OTCPK:CPOKY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am a private investor, not an investment advisor, and share my analysis for information purposes alone. Investors should not rely on any information included in this article, but seek professional advice.