An update from manager Orsen Karnburisudthi
In this podcast, investment manager Orsen Karnburisudthi provides an update on Thailand's recovery from the pandemic and discusses recent political developments in the country. He also explores the impact on dividends in Thailand this year and discusses the outlook for 2021.
Recorded on 25 November 2020.
Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series. With me today is the manager of the Aberdeen New Thai Investment Trust, Orsen Karnburisudthi. We'll be talking about how Thailand is recovering from the pandemic and whether recent political developments are likely to have any impact on the company. Welcome Orsen. Now, economic data appears to be improving in the region, are you generally confident that the recovery is building momentum?
Orsen: Yes, if you look at Thailand, the GDP growth has recovered from the second quarter, the second quarter GDP decreased 12% year on year, the third quarter is still down compared with the third quarter last year, but down less with 6.4%. This is better than expectations of 8 to 9%. And if you look at GDP growth for the full year, the growth would be about minus 6%, which is much better than estimates earlier in the year at the peak of the Covid pandemic in March and April. Much of this will come from government spending. These have been strong, both normal spending by the government as well as capital investments. In the third quarter both of these have been positive. The biggest uncertainty remains Covid-19. Thailand, fortunately, is doing better than many countries, including neighbours.
Interviewer: And are there still some sectors set to recover?. I mean, how about the region’s all important tourism sector, for example.
Orsen: I'll start with the sector overall. And then touch on tourism. The private sector has recovered from the second quarter, understandably. The third quarter is still down year on year, the fourth quarter as well. And not back to the baseline of 2019. So it's still quarter on quarter momentum, but it could still take a few quarters to come back to levels of last year. International tourism is a large variable. We're expecting foreign tourists of just under 7 million this year. But take into account that 6 million is before the lockdown earlier this year. So just really not much tourist arrivals this year. The figure next year, the estimate is about 5 million international tourist arrivals, the latest estimate, and this is assuming a vaccine would be available in the third quarter of next year. So that's the one large variable for 2020. In the meantime, where we have seen, areas of improvement - government has been subsidising spending for consumers that ranges from cash handouts, to co-payment schemes, and even domestic travel schemes where the government subsidises up to 40% of a hotel room and dining. So this encourages domestic tourism. Besides these subsidies, if you're looking forward to global trade, exports look promising with the result of the US elections with Mr. Biden winning but this will take time to be reflected for global recovery in trade.
Interviewer: Okay, and I mean, there has been some political upsets recently with some kind of high profile protests against the king. Are these sort of isolated incidents, or can you see them having any economic impact?
Orsen: The short answer is immediately it's limited to economic recoveries and momentum continues. But more in the protesters the protest, rather, it's more across many issues, these including the monarchy - touching upon the monarchy as well. Most protesters are students, first time voters. And these protests have actually commenced before Covid-19 – it actually started earlier this year. A couple factors include angst, disenfranchisement, a popular party that they like was disbanded, not liking the government, the way the Constitution is written, the way the Senate is selected, and just having a Prime Minister since 2014. Quite a long time, along with the economic slowdown and the inequality that ensues. But on the fortunate side, the protests have been non-violent. It's been stretched out for several months already. I think the peaceful protests will continue. And it's the issue on how the institutions will be performed going forward. It will be stretched out because there has been quite a lot of reforms in those social, economic and political fronts.
Interviewer: And while this has been going on, what's been happening in the Thai stock market? Has there been any kind of notable winners and losers, what's been the overall performance?
Orsen: The market is still down year to date, like many other stock markets. There’s been different winners and losers over the course of 2020. If you start with the initial plunge with Covid, most stocks sell as well as energy. There was a recovery in May, June, July. The market was sideways August, September, October, a huge drop - a weakness - in October followed by the November rally of risk on attitude with prospects of a vaccine. So earlier in the year, low oil prices helped manufacturers that import including logistics companies and distributors, the lifting of lockdown helped retailers and the latest prospects of a vaccine, travelling tourism and competitors, for example, airports, hotels, hospitals, shopping malls. On the whole, the larger companies in each sector benefited more than overall, particularly those that are listed on the stock market.
Interviewer: And how do relative valuations look today, both regionally and compared to kind of international peers?
Orsen: If you look at the market earnings growth at the depth of the crisis, earnings estimates are down 18 to 20%. That's earnings for this year. This has improved to 11, 12% just by way of a better than expected recoveries since the second quarter, to rebound to 2019 level would take a bit longer. EPS is still down this year. So we're looking towards the end of 2021. Where earnings should pull back to the levels of 2019. And we're seeing 2022 growth of about 10%. If you look at PE ratings, the market is trading on 17 times 2021 and 16 times 2022. It is slightly elevated, I think historically, a level of 14 to 15 times would be more attractive. It's just the fact that there isn't much earning support at the moment. And expectations are running slightly ahead. Just given the developments of Covid-19.
Interviewer: Okay, and looking at the New Thai portfolio now, have you made any recent changes? Are there any sort of notable themes running through the Trust today?
Orsen: Yes, for the past three to six months, we have increased weight in several sectors. The first is services. We are underweight the sector but we have decreased this underweight so this would include services such as transport, for example, Airports of Thailand, and also increasing more weights in retailers, those that are benefiting from the recovery in spending. We have also increased weights in tech – technology, not only electronics companies, the assemblers, the exporters, but also the mobile telephony companies, the operators in Thailand. We are slightly underweight technology now and the underweight has decreased over the quarters. We have decreased weights in property and construction. For the most part, this is property developers, we don't hold property developers anymore, focusing more on asset owners with recurring rental income. We have also trimmed materials company particularly after the run up in the second quarter for example, cement companies. We have also decreased weights in financials, particularly insurance, several banks especially the large banks and some non bank financials. Within energy and resources, we also refreshed the sectors adding new utilities names. It's a mix of power utilities and water with some exposure to infrastructure investment. So these are the main changes: increased weights in services and technology, decreased weights in property, construction and some financials and just refreshing of names within energy and resources.
Interviewer: And what sort of feedback are you getting from companies that you're speaking to at the moment? Are they generally kind of optimistic or pessimistic looking into 2021?
Orsen: The drop in third quarter sales is less than initially expected. It's still down year on year, the third quarter, but the trajectory is better than expected. Again, a reflection of macro, you can see this in same store sales growth of retailers which is less negative year on year, asset quality from banks, meaning low, lower than expected, NPL formation, recovery in consumer durable sales like automobiles. Measurement is cautiously optimistic - the largest corporates with the best financial resources are improving their market shares. Again the concern overall is just that non listed, smaller companies are benefiting less or being less optimistic, suffering more from the implications of the overall economy.
Interviewer: And now the Trust currently has a yield of over 5% - how have dividends from Thai companies held up?
Orsen: Typically companies pay as a percentage of profits. And most would have a declared minimum payout ratio. This hasn't changed. At the margin, you've seen interim dividends for this year to be down slightly just by way of lower profits. Some companies do keep an absolute level stable. So even if profits are down, some companies do increase their payout ratios just to maintain the absolute level of dividends. What we're seeing this year is average dividend yields of the companies that we invest to be around 4%. I think that will be maintained if not improved upon. The upside for dividends from the Trust would be capital gains, or any gains, especially the market run up and the Trust also has reserves upon which dividends can be drawn.
Interviewer: Okay, what is the Trust’s current position on gearing, do you still have debt in the Trust?
Orsen: Gearing levels have ranged from 10 to 15%. It is currently towards the mid to high end of that range. The absolute debt level for the Trust is unchanged since the fourth quarter of 2019, it’s just as the percentage change with market movements. So if the market fell, for example, towards the end of March and the end of October, the gearing would increase just by way of the NAV of the Trust coming down. But nevertheless, we do intend to keep gearing within this range and with the absolute debt unchanged for the Trust.
Interviewer: And finally, there are more promising signs as we move into 2021. You know, the vaccine, better treatments, this kind of thing. I wonder if you could just give us a flavour of your thinking on the outlook?
Orsen: GDP will continue to be down year and year for the next one to two quarters just by comparison. It's better on a quarter and quarter basis. But if you look at the nine months, I mentioned third quarter earlier, of minus 6.49 – nine months is minus 6.7. So not bad and for a four year expectation of minus 6.28 so still a couple more quarters of weak year on year numbers and positive quarter on quarter numbers. The runway for 2021 would be a 3.5 to 4.5% growth, GDP growth. The momentum not only for stocks and for earnings will come from the improving macro and additional upside, just from tourism and travel, which I think is not yet totally factored into expectations.
Interviewer: Great, okay. Thank you Orsen for those insights today. And thank you to our listeners for tuning in. You can find out more about the trust at www.newthai-trust.co.uk. And please do look out for future updates.
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only and should not be considered as an offer investment recommendation or solicitation to deal in any of the investments of products mentioned herein does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen standard investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.
An update from manager Orsen Karnburisudthi
In this podcast, investment manager Orsen Karnburisudthi provides us with an update on the only investment trust investing exclusively in Thailand. He discuss the ongoing impact of Covid-19 on this country and how the portfolio is positioned. He also shares feedback from companies and explores the dividend situation in Thailand.
Recorded on Monday 10th August 2020.
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Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series. With me today is the manager of the Aberdeen New Thai Investment Trust. Orsen Karnburisudthi will be talking about developments in the Thai market over the past three months. Welcome Orsen. Now when we spoke last time, we talked about how Thailand had been relatively lightly hit by the virus with a few cases and even fewer deaths. Has that kind of relative success continued?
Orsen: Yes the success has continued. We've had virtually zero local transmissions since May. So it's been over two months where there have been no local transmissions. The only cases coming in would be returning Thais. 99% of these are returning Thais from other countries. The other 1% would be certain cases like diplomats or army military drills. But all in all, the figures are very controlled. The total number to date is just about 3,300 cases with 58 deaths, and that number of deaths hasn't changed for really the past two, almost three months.
Interviewer: And what has that meant for the Thai economy? I mean, has it meant that key sectors such as tourism have bounced back at all?
Orsen: The economic data were stressing monthly high frequency data just tilt down, compared with the same period last year. For example, June exports and imports are down in the range of 20%. What's improving is that this degree is less compared with the previous two months. So it's really coming from a shutdown, a lockdown, that began in March. So the low point was around April May and you're seeing resurgence, companies starting to start production again. The challenge with tourism is that your ports remain closed. And there's no plan yet. And in the next several months, probably the rest of this year, to allow international commercial flights. So we're expecting tourist numbers to be down to about seven to 9 million visitors this year. That's down 85% from 14 million last year, so it's down almost 80%.This is a figure coming from the Tourism Authority of Thailand. So we're struggling along with many other countries in terms of tourists. That said there was a domestic tourism scheme with a 22 billion baht stimulus that encourages Thais to travel up country, in the rural areas with subsidies in hotels, restaurants and transport. So to some extent that would offset the much lower figure from international tourists.
Interviewer: And so is most of the weakness in the GDP numbers coming from that tourism hit?
Orsen: From -- that's one of two areas. The other area would be exports. As you know, global trade US China for the past several quarters has affected not only global supply chains. So these two factors, tourism and global trade has really caused GDP to be very weak this year. So the latest forecast is in the range of 8 to 9% down for 2020. So central bank is expecting negative 8.1. The finance ministry just a few weeks ago came out with minus 8.5. So that's the figure we're seeing. The earlier estimate was in the range of 5 to 10%. So this is really a fine tuning of forecasts.
Interviewer: And looking at stock markets now, I mean they were obviously very volatile across the world for a period of time, but as they’ve calmed down a little and the picture has become a bit clearer, have you made any adjustments to the portfolio or are you largely happy with where it lies?
Orsen: In terms of the market, the big drop was in March followed by the very swift rebound in April. The past two months, June and July have been pretty flat. So pretty much the rebound, the drop from February March back to the levels of June, the markets are pretty much back to the levels of around February right before the Coronavirus hit. So the asset allocation, in terms of the rebound overall in equity has pretty much been back to the levels like I mentioned. And what's changed is now how stock selection is more important in the sense that if you choose to make stock adjustments -- as you say to the portfolio -- for the past three months, we made several changes to the portfolio. We trimmed down several sectors, concentrating holdings for example, property and banks. These two sectors, we exited several stocks. We also added new stocks to the portfolio, initiating stocks iin transport and retail and also in mobile phone information, communication technology type businesses, so it's more strategic adjustments in terms of sectors which we like and also specific stocks.
Interviewer: And how does the portfolio look today? Are there any kind of big themes that you’d draw out?
Orsen: Yes, the biggest exposures for the Trust -- the largest sector is energy and utilities. We are underweight that sector however, it's a bigger sector but it’s underweight. Just by way of we're new to energy but underweight utilities because of just valuations. The next largest sector is construction materials. This is strategically overweight, in the sense that the lower oil prices since March has benefited margins, especially since March and April. So you're seeing these in better relative performances in construction material stocks. These would include cement and tiles. The third largest sector is commerce. This is a big – a reasonable overweight in a sense. We like specialty retailers now so consumer staples are retailing in a sense in a relatively resilient sector within the stock market. For these three sectors, energy and utilities, we have about a 16% rate, construction materials 13 and commerce about 10%.
Interviewer: And, obviously you're talking to companies all the time. What feedback are you getting from them – are they generally optimistic, pessimistic? How are you finding their mood?
Orsen: I think they're more on the cautiously optimistic outlook in the sense that there’s been a gradual loosening of restrictions, but still wary, as is the government of whether there will be a second wave. That's what we're seeing in other countries. So far, we haven't seen any wave but I believe corporates are just being prepared and not being overly optimistic about the trajectory of growth. So retailers have seen a rebound. Rebound since March, April lockdowns. Banks are reasonably cautious in the sense that they have forbearances in terms of their loans. But they have set up a lot of provisions just to be cautious. Construction materials I mentioned, most companies have a pretty muted top line growth, demand will be flat and not down. But their margins will be better just because of lower input prices, lower energy prices, for example. I think overall, what you're seeing from second quarter results, companies are reporting weaker numbers, especially on the top line, most have weaker margins. I think the outlook is pretty, pretty cautious. Just looking at how spending -- how people are spending or how businesses are investing at this point.
Interviewer: And what about the impact on dividends? Is that caution reflected in companies still holding back on dividend payout?
Orsen: Dividends are paid typically as a percentage of profits. So, for the most part companies are maintaining their dividend payout ratios as a percentage of profits. The main exception would be banks where the central the central bank is encouraging banks to reevaluate the capital position to conserve capital and discouraging paying interim dividends. That said, banks capital positions are quite strong -- capital ratios of over 15, 16%. And any worst case scenarios could just take away one or two percentage points. So, I think companies, or at least banks, are just being conservative at this point. Other corporates have declared interim dividends thus far. And it's really just reflecting if profits are lower, then the dividends would be lower proportionally, but dividends are still being paid.
Interviewer: And the Trust has historically had a reasonably high yield. Are you reasonably confident that can be sustained for the year ahead?
Orsen: Yes, looking from the company’s -- the dividend yield, and the amount of yield that corporate and the Trust are paying, it still seems reasonably optimistic that the Trust could maintain a good dividend.
Interviewer: And I mean, looking at markets today, do you think they fully reflect the risk that is still out there? Or is it very much kind of sector by sector. Are there still kind of bargains to be found really amongst volatile markets?
Orsen: I think there are still surprises. Even when companies report their second quarter numbers, there’s still an immediate reaction to the share price either way, either it's a positive or negative surprise. For example, banks that announce large provisions, front loading their provisions, for example, had an immediate drop. That creates opportunities because these are the more conservative banks that are setting these provisions early. For example, construction materials companies, for the most part, have much better margins just because oil prices are low, because spreads have improved because of these dynamics and energy prices. So you're affecting that in the share prices as well. So, the market still sees opportunities, especially across sectors for views, sectors, which we believe will do well in this environment. And the way that our portfolio is positioned, we do like materials just by way of margins. We like commerce, just by way of the resiliency as well as prospects of top line growth.
Interviewer: And what is the Trust’s current position on gearing? Have you been able to use it to your advantage through this period?
Orsen: The gearing is currently 12, 13%. Pretty much unchanged over the past three months. It's just been used just -- as the market hasn't been too volatile. So we haven't really changed the gearing much. Part of it was used to pay for the Trust’s dividend that was paid earlier. But I think we're comfortable keeping around the 10 to 13% level in these circumstances. Of course, if the market drops sharply or increases either way, then I think we could readjust accordingly.
Interviewer: And just finally, could you give some of your views on the outlook for the second half of the year and what investors might be able to expect?
Orsen: The second half is going to be a recovery kind of outlook, just following the trajectory of the economy. The second quarter GDP numbers aren't announced yet. But that would be in the upcoming weeks. We're expecting the GDP drop of low double digits. I think the consensus is 13% compared with the second quarter of last year. If you work out how first quarter is, second quarter and the forecast for full year of about 8 to 9%, then we're seeing slight growth, positive numbers for the second half. So that's what we're expecting in terms of top line and profit momentum for sectors. Of course, this would affect certain sectors, for example, domestic oriented consumption, investment type, government spending type of exposures, and I think our Trust is quite well positioned to that respect.There's still challenges in the tourism and export sectors. Tourism would be reflected in the hotel companies and the airports companies. Even also medical tourism, these are seeing these same poor numbers before in the second quarter. And the outlook is still challenging, at least for the second half of this year. Beyond the second half we’re just thinking a continuation of the recovery. Back to spending, back to a certain sense of normalcy over the course of 2021. And for 2021, we're expecting a GDP growth of in the range of 3 to 5%, which isn't too bad. It isn't back yet to the level of 2019. But going to a certain level of normalcy, granted that global trade through exports or tourism isn’t likely to come back very quickly.
Interviewer: Great. Okay. Thank you Orsen for those insights today, and thank you to our listeners for tuning in. You can find out more about the trust at www.newthai-trust.co.uk. And please do look out for future episodes.
This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only, and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.