Going into 2021, we noted that investor sentiment towards equity markets, in general, appeared resilient and likely to be supported by the prospects of a global economic recovery during the year, underpinned by the roll out of Covid-19 vaccines. We further noted that economic fundamentals favored developed markets over emerging markets. In the event, most equity markets moved higher over the year with the US market leading the way. The S&P500 Index gained 27% in 2021 while the tech-heavy NASDAQ Index rose 21%.
Reflation and recovery were the main investment themes during the year, with investors responding positively to the faster than expected rebound in economic growth in the US. This growth, however, and the accompanying spike in inflation as supply chain constraints led to consumer demand outstripping supply, created a dilemma for the Federal Reserve.
In relative terms, the SET Index performed well against regional markets, gaining 14% over the year, despite the challenging, domestic economic backdrop. The emergence of Covid variants delayed the reopening of the important Thai hospitality sector to international tourists, while a spike in infections in July caused a six week “lockdown” which further exacerbated the recovery. GDP Growth for Thailand in 2021 is expected to be just over 1%. Nevertheless, domestic investors did not lack enthusiasm for equities and this drove the Index higher on a sharp rise in SET trading volumes.
Going into 2022, there is a high level of uncertainty over the potential for global equity markets to continue rising, with uncertainties on both economic and geopolitical fronts. In terms of the global economy, the positive case is that corporate earnings growth will be strong as economic growth accelerates on easing Covid concerns (due in large part to progress in vaccinations and therapeutics). Our view on the economy falls between these two scenarios. We see moderate, global economic growth and some easing of inflationary pressure as supply chain constraints ease. We expect that interest rates will rise but in a manageable fashion and that the Federal Reserve will be accommodating, rather than attempting to get “ahead of the curve”. The Thai economy in 2022 may well compare favorably with the more developed economies in 2022 as the hospitality sector starts to rebound and exports continue to recover. Against this backdrop, we see limited downside for both global equities and Thai equities.
The second concern is geopolitical and recent the developments in Ukraine. As at the time of writing, a compromise does not appear to me in site, though a diplomatic solution does appear plausible. With pressures on Ukraine likely to persist, this is contributing to increased equity market volatility.
Turning to the group performance in 2021, Finansa Plc. (“FNS”) reported a Consolidated Net Loss of TBH 42.2mn for the year against a Net Profit of THB 223.3mn reported for 2020. The year on year comparison, however is distorted by one off items, notably the significant one-off gain in 2020 from the sale of FNS’s warehouse portfolio to the Prospect Logistics and Industrial Leasehold Real Estate Investment Trust. The decline in earnings also reflected the negative impact of Covid-19 on the earnings of Associated Company, MK Real Estate Development Plc. (“MK”). Residential Housing demand weakened in 2021 and MK’s newly launched Health and Wellness business, RAKxa, was particularly badly impacted, while residential housing demand also weakened.
The key business development in 2021 was the sale in December of the group’s stake in FSS. The decision to exit the brokerage business reflected a number of factors including the historic variability in FSS’ earnings, the sensitivity of these earnings to (unpredictable) SET Trading Volumes, the intense competition in the Thai securities industry and the particular challenges of being an “independent” broker, not associated with a bank. As at the time of writing, FNS is also in the process of selling it’s 100% owned subsidiary, Finansa Securities Ltd. (“FSL”). This transaction is expected to complete in Q2 2022. FNS is also in the process of disposing of the office space at TISCO Tower. Overall, the combined asset sales will realize approximately THB 1.2 billion.
The disposal of FNS’s Financial Services businesses clearly changes the profile of the Group. These businesses represented approximately one third of the assets in FNS’s Consolidated Balance Sheet during 2021. To put this into context, the investment in Real Estate Development, through the stake in MK Real Estate Development Pcl., represented around one third of the assets and Direct Investment (including Private Equity and the PROSPECT REIT) represented around one fifth. The balance was primarily cash and cash equivalents and the office space in TISCO Tower. With the exit from Financial Services, FNS can be now viewed as an Investment Holding Company rather than as a Holding Company with significant financial services investments.
Going forward, management’s focus in 2022 will be on adding value to the core investments in MK and the PROSPECT REIT, as well as to the portfolio of Private Equity investments. While still cautious on the immediate outlook for the Thai residential housing market, and managing resources accordingly, the management of MK is encouraged by both the continuing strong performance of subsidiary Prospect Development Ltd., which develops warehousing, and the market’s response to the RAKxa Health and Wellness offering. While the recovery in international tourism to Thailand may be modest through most of 2022, the longer term outlook for RAKxa is viewed as very positive. The investment in RAKxa is an important, additional step in MK’s long term strategy of building streams of recurring income. A focus for MK in 2022 will be sales of surplus/non-core land and other assets, which will potentially generate both significant liquidity and earnings.
Meanwhile the Bangkok Free Trade Zone, the principal asset of the PROSPECT REIT has been more or less unaffected by Covid-19 and occupancy and rental rates have been solid. This is expected to continue in 2022.
The key objective in Private Equity going forward will be “monetization”. The first significant exit here is expected to the through the listing of NEO Corporation on the SET. FNS has a 12% stake in this leading household and personal care products manufacturer. Meanwhile, new Private Equity investments will be required to show a clear exit path and return profile. An example is the group’s investment in BFTZ Wangnoi Co.,Ltd., a company set up to build a new distribution centre for Siam Makro. FNS is a 50% shareholder and long term bank financing is in place. The intention is to sell the asset into a REIT in 2025. Meanwhile the inflow of cash from asset sales in 2021 and 2022 will be used to reduce debt and as part of the treasury management function, some funds will be invested in selective overseas listed equities.
Overall, the objective of FNS’s management in 2022 is to ensure a productive allocation of the group’s assets, support group companies to fulfil their potential, monetise assets and improve the overall quality of the Group’s earnings, both in terms of visibility and sustainability.
Finally, I would like to express the Board’s appreciation for the services to the Board of Finansa’s former Chairman, Dr. Virabongsa Ramangkura, who sadly passed away during the year. He served shareholders in his position as Chairman for 16 years and his professionalism, integrity and intelligence will be missed.
|Consolidated Financial Statements||2021||2020||2019|
|Revenues from business operation||257.0||552.0||279.0|
|Compensation fee from termination of sublease agreement||198.1|
|Costs and Expenses|
|Business operation costs and expenses||157.4||283.8||220.3|
|Servicing and administrative and other expenses||63.6||54.7||42.7|
|Allowance for expected credit loss/Impairment loss on investment||(32.9)||61.7||26.8|
|Total costs and expenses||345.9||548.1||390.3|
|Profit (loss) from operations||(80.0)||215.5||(84.9)|
|Share of profit from investments in associated companies||50.9||30.8||(7.1)|
|Income tax - income (expense)||(13.1)||(23.0)||9.4|
|Net profit for the year||(42.2)||223.3||(82.6)|
|Earnings per Share (Bt.)||(0.12)||0.65||(0.24)|
|Consolidated Financial Statements||31-Dec 2021||31-Dec 2020||31-Dec 2019|
|Total Liabilities and Shareholders' Equity|
|- Total Liabilities||1,511.2||1,261.9||1,421.3|
|- Total Shareholders' Equity||2,617.3||2,806.4||2,675.4|
|Total Liabilities and Shareholders' Equity||4,128.5||4,068.3||4,096.7|
|Issued and paid-up share capital (share)||345,855,440|
|Net Earnings to Total Income||-15.9%||29.2%||-27.0%|
|Return on Average Total Assets||-1.0%||5.5%||-2.0%|
|Return on Average Total Shareholders' Equity||-1.6%||8.1%||-3.0%|
|Debt to Equity (times)||0.58||0.45||0.53|
|Book Value per Share (Bt.)||7.57||8.11||7.74|
|Consolidated Financial Statements (Quarterly)||Q1-2021||Q2-2021||Q3-2021||Q4-2021||Q1-2022||% QoQ||% YoY|
|Revenues from business operation||89.1||103.4||29.5||35.0||87.1||149%||-2%|
|Costs and Expenses|
|Business operation costs and expenses||49.9||74.5||31.9||42.9||39.2||-9%||-21%|
|Servicing and administrative and other expenses||28.1||20.5||18.8||(2.7)||18.8||-796%||-33%|
|Loss on sale of an associate||-||-||-||56.1||-||-100%||-|
|Total costs and expenses||78.0||95.0||50.7||96.3||58.0||-40%||-26%|
|Profit (loss) from operations||11.9||12.4||(20.4)||(58.0)||31.3||-154%||163%|
|Expected credit loss (reversal)||(8.2)||(7.9)||(8.4)||(8.4)||-||-100%||-100%|
|Share of profit(loss) from investments in associated||0.7||7.4||6.0||36.8||(28.6)||-178%||-4186%|
|Income tax - income (expense)||(9.2)||(2.7)||(1.2)||-||(5.6)||-||-39%|
|Net profit for the period||(1.4)||13.4||(21.0)||(33.2)||(17.1)||-48%||1121%|
|Earnings per Share (Bt.)||(0.00)||0.04||(0.06)||(0.10)||(0.05)||-48%||1121%|
|Consolidated Financial Statements||31/03/2021||30/06/2021||30/09/2021||31/12/2021||31/12/2022||% QoQ||% YoY|
|Total Liabilities and Shareholders' Equity|
|- Total Liabilities||1,164.4||1,048.8||1,614.8||1,511.2||1,283.5||-15.1%||10.2%|
|- Total Shareholders' Equity||2,704.4||2,676.9||2,663.2||2,617.3||2,595.7||-0.8%||-4.0%|
|Total Liabilities and Shareholders' Equity||3,868.8||3,725.7||4,278.0||4,128.5||3,879.2||-6.0%||-0.3%|
|Issued and paid share capital(share)|
|% QoQ||% YoY|
|Net Earnings to Total Income||-1.6%||12.5%||-69.3%||-86.6%||-19.1%|
|Return on Average Total Assets||-0.1%||0.7%||-0.7%||-0.8%||-0.4%|
|Return on Average Total Shareholders' Equity||-0.2%||1.0%||-1.0%||-1.3%||-0.7%|
|Debt to Equity (times)||0.43||0.39||0.61||0.58||0.49|
|Book Value per Share (Bt.)||7.82||7.74||7.70||7.57||7.51||-0.8%||-4.0%|
EPS (ROLLING 12 MONTHS)
TOTAL SHAREHOLDERS’ EQUITY
BOOK VALUE PER SHARE
|Period||Amount||XD Date||Payment Date|
|1-Jan-21 to 31-Dec-21||Bt 0.50||11-May-22||27-May-22|
|1-Jan-20 to 31-Dec-20||Bt 0.15||11-May-21||27-May-21|
|1-Jan-20 to 31-Dec-20||Bt 0.35||8-Mar-21||22-Mar-21|
|1-Jan-20 to 30-Jun-20||Bt 0.15||1-Oct-20||14-Oct-20|
|1-Jan-18 to 31-Dec-18||Bt 0.15||3-May-19||21-May-19|
|1-Jan-17 to 31-Dec-17||Bt 0.15||7-May-18||24-May-18|
|1-Jan-16 to 31-Dec-16||Bt 0.10||3-May-17||24-May-17|
|1-Jan-15 to 31-Dec-15||Bt 0.10||3-May-16||19-May-16|
|1-Jan-15 to 30-Jun-15||Bt 0.20||14-Oct-15||27-Oct-15|
|1-Jan-14 to 31-Dec-14||Bt 0.10||8-May-15||25-May-15|
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