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Aberdeen New Thai’s stance on PTT and CP All corporate governance holds back returns

Aberdeen New Thai’s net asset value rose by 26.5% on a total return basis to 600.2p, compared to the sterling-adjusted gain for the benchmark, the Stock Exchange of Thailand Index, of 36.5%. The share price rose by 27.8% on a total return basis to 510.0p, reflecting a narrowing of the discount to the net asset value (including income) per share from 15.5% to 15.0%. The revenue earnings per share were 10.3p for the year ended 28 February 2017 (2016 – 8.9p) and the Board is proposing to shareholders an increased final dividend per Ordinary share of 10.3p (2016 – 8.5p).

The portfolio was disadvantaged by a lack of exposure to mainstays of the benchmark that did well on the back of an influx of indiscriminate passive buying. Among these were energy giant PTT and convenience store operator CP All. PTT posted a substantial jump in net profits on the back of a rebound in oil prices, while CP All continued to perform well despite a scandal involving insider trading by top management. They do not hold both PTT and CP All, given, what they believe are, transparency and corporate governance issues. Another non-holding was Group Lease, whose shares surpassed the benchmark after attracting funds from Japanese investor J-Trust Co, but subsequently faltered as news of accounting irregularities surfaced. The portfolio’s non-exposure to PTT Global Chemical and Indorama also hurt returns as the global chemical sector continued to consolidate. Polyester value chain company Indorama has also been on an aggressive acquisition and expansion path globally.

Meanwhile, BEC World suffered from challenging operating conditions, exacerbated by the mourning period for the late King as spending by advertisers plunged. The portfolio continues to hold a relatively small position in the company because they continue to believe in the firm’s well-established franchise and are confident that its earnings will start to recover in the near term.

Among the key contributors to the portfolio’s performance was local mining giant Banpu, which benefited after a production cut in China pushed coal prices up, while its regional power generation operations and recently-launched US shale gas business helped profits. Similarly, utility provider Egco’s shares were lifted by robust earnings from increased capacity both at home and abroad.

An improving domestic auto industry also had some positive impact on a few of your company’s holdings. Thai Stanley Electric gained from better sales and prudent cost management, while Bangkok Insurance’s revenue from its motor business, which contributes substantially to its profits, rose.

In the financial sector, Kiatnakin Bank did well as one-off divestment gains bolstered earnings, while Tisco Financial Group reported healthy profits, driven by higher margins and lower provisions. Separately, the market cheered its acquisition of Standard Chartered Thailand’s consumer loan business for 5.5 billion baht. Another contributor to returns was Aeon Thana Sinsap, which enjoyed better commissions, a reduction in expenses, and good asset quality.

DIY retailer Home Product Center was aided by resilient same-store sales, as well as its ongoing expansion in the region. Hana Microelectronics benefited from a cyclical upturn and increased exports to announce decent income. Elsewhere, small-cap holding Alucon’s stock rallied on the back of greater demand and efficient cost controls.

ANW : Aberdeen New Thai’s stance on PTT and CP All corporate governance holds back returns

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