It was evident during the first few weeks of 2020 that it was going to be a challenging year, both economically and socially. The emergence and spread of Covid 19, the defining event of 2020, sparked a wave of policy actions across the globe to prevent the spread of the virus. The imposition of lockdowns on many economies sent shivers through financial markets and meant that a global recession was inevitable. The S&P500 index fell 34% between February 19 and March 23. The question at that point was how deep the recession would be and how long it would last. There was some hope that a ”flattening of the curve” in terms of the Covid infection rates would lead to a “V” shaped economic recovery underpinned by fast -tracked development of Covid vaccines, however, most observers saw this as wishful thinking, believing that a recovery of the global economy to pre-Covid levels would be both slow and gradual. With Central Banks limited in their scope to reduce interest rates further and an acceptance that cutting rates would have little effect on the levels of private investment and consumption, the pressure was on governments in the leading economies to accelerate fiscal spending to counter a surge in unemployment and avoid a wave of corporate bankruptcies. In the event, governments did turn to fiscal stimulus and borrowings subsequently surged with central banks buying the issuance at a record pace.
Despite the relatively gloomy prognosis for the global economy, equity markets took heart from the abundant financial liquidity being created by the massive amounts of Quantitative Easing. Moreover, central banks signaled that interest rates were going to stay low for an extended period. As a result, equity markets began to rally from late March. Investors, encouraged by the change in sentiment, sought out opportunities, recognizing that the pandemic was accelerating a number of underlying social and economic trends, notably, shopping online, work from home, AI, Cloud and automation. There was also recognition that there would be material changes in the global supply chain and the prospect of increased public spending galvanized calls for major investment initiatives to address climate change.
Led by technology companies, the S&P500 hit an all-time on 31 December, finishing the year with a rise of 16% and 72% above its March low.
Emerging markets initially fell back on the emergence of the pandemic as investors sought safety in the US, but started to recover late in the year on the announcement of Covid vaccines. Asian markets proved to be relatively resilient as it became clear that the Covid impact in this part of the world had been relatively muted in health terms and it became clear that China would be an engine of global growth going forward.
To date, Thailand has undoubtedly handled the heath impact from Covid 19 well, however the Thai economy has suffered significantly from the evaporation of overseas tourist arrivals. The Thai economy looks set to have contracted c.6% in 2020 and growth in 2021 will be muted. Nevertheless, Thailand’s current account and international reserves positions are exceptionally strong.
The SET Index underperformed its regional peers over the year. North Asian markets generally outperformed given a greater technology bias within their respective markets. The SET fell 8% over the year, but gained 41% from its March low.
Going into 2021, investor sentiment globally towards equities appears to be relatively resilient and there has been a degree of rotation within markets towards underperforming cyclicals. However, we would caution that there is limited room for complacency at current, extended valuations and the degree to which the major central banks are supporting valuations through exceptional levels of liquidity support.
Uncertainties remain, notably on the economic front. The roll out of Covid vaccines will hopefully lift consumer and business confidence, however the degree of long term economic damage from the pandemic is still unknown. The Biden administration in the USA is expected to seek an easing of trade tensions between the USA and China, and as earlier indicated, a feature of 2021 will likely be a stronger (and assertive) China.
At this point, equity markets appear to be discounting a slow economic recovery through 2021/22, implying corporate earnings will rise. While growth year on year in 2021 should be material, we would expect the growth rate to stabilize thereafter at a low level. The key to maintaining valuations will be support from Central Banks in holding down long term interest rates. The main risk to financial markets is arguably liquidity, which could be squeezed by a pick-up in inflation and/or defaults in the corporate bond markets.
Through 2021, investor sentiment in the Thai market will be driven by local investor confidence and the risk appetite of international investors. There were substantial outflows from Emerging markets in the wake of Covid 19 and there is scope for a reversal in 2021. That said, the Thai economy is unlikely to deliver a stand out performance this year. Forecasts for economic growth in 2021 are already being trimmed back and some forecasts are now below 4.0% for the year. Given sluggish global growth, investors will likely seek out those markets witnessing material productivity growth underpinned by widespread technology adoption.
Turning to the group performance in 2020, Finansa Plc.(Finansa) reported a Consolidated Net Profit of Bt.223.3 million for the year, against a Net Loss of Bt.82.6 million for 2019. While the 2019 performance was hit by a collapse of Investment Banking income at Finansa Securities Ltd. and losses in securities brokerage, through associated company, Finansia Syrus Securities Pcl., both of these businesses witnessed significant recoveries 2020. In the case of Investment Banking, Finansa Securities was the Financial Advisor and Lead Underwriter on the successful, Bt.15 billion IPO of Sri Trang Gloves (Thailand) Pcl.. In the case of Finansia Syrus Securities, the company benefited from a material 29% increase YoY in average daily turnover on the Stock Exchange of Thailand (“SET”), the increasing share of that trading activity by local investors and the efficiencies brought about through tight controls on costs. Adding to the Group’s strong performance in 2020 was the one-off gain derived from the sale of Finansa’s warehouse portfolio to the Prospect Logistics and Industrial Leasehold Real Estate Investment Trust in August.
2020 also saw Finansa increasing its stake in MK Real Estate Development Pcl. (“MK”) from 18.8% at end 2019 to 26.5% at end 2020, through a Tender Offer. Over the past five years, Finansa has been active in supporting a strategic shift in MK’s business from pure property development to a mix of property development and investment, with a view to building a base of recurring income for MK. This transition has been progressing satisfactorily and while 2020 has proved a challenging year for MK, with the economic impact of Covid on housing demand, the improvement in quality of earnings and the scope for a recovery in housing sales augur well for the long term prospects of the company. We would add that MK has been protected during the current downturn in demand by its focus on low rise, mid-market family homes.
Going forward, 2021 is expected to be another challenging year for the Thai economy. As indicated above, there will be lingering effects from the pandemic and growth will likely be subdued, however corporate earnings overall should show material improvement and the financial markets will continue to be supported by unprecedented levels of liquidity. To the extent that trading on the SET remains active, Finansia Syrus Securities should see further improvements in performance. And if valuations are sustained, IPO activity should remain buoyant. The year has started well for Finansa Securities, which acted as a Co-Lead Advisor on the successful Bt.48 billion IPO from PTT Oil and Retail Business Pcl. On the property side, MK management remains cautious on the demand outlook for 2021 and is managing its resources accordingly.
Overall, the objective for Finansa’s management in 2021 is to build on the improvements made in the operating performances of the Group companies in 2020.
(Dr. Virabongsa Ramangkura)
|Consolidated Financial Statements||2020||2019||2018|
|Revenues from business operation||552.0||279.0||517.7|
|Compensation fee from termination of sublease agreement||198.1|
|Costs and Expenses|
|Business operation costs and expenses||283.8||220.3||261.1|
|Servicing and administrative and other expenses||54.7||42.7||47.9|
|Allowance for expected credit loss/Impairment loss on investment||61.7||26.8||22.6|
|Total costs and expenses||548.1||390.3||464.9|
|Profit (loss) from operations||215.5||(84.9)||56.9|
|Share of profit from investments in associated companies||30.8||(7.1)||27.7|
|Income tax - income (expense)||(23.0)||9.4||(20.5)|
|Net profit for the year||223.3||(82.6)||64.1|
|Earnings per Share (Bt.)||0.65||(0.24)||0.25|
|Consolidated Financial Statements||31-Dec 2020||31-Dec 2019||31-Dec 2018|
|Total Liabilities and Shareholders' Equity|
|- Total Liabilities||1,261.9||1,421.3||1,537.3|
|- Total Shareholders' Equity||2,806.4||2,675.4||2,822.5|
|Total Liabilities and Shareholders' Equity||4,068.3||4,096.7||4,359.8|
|Issued and paid-up share capital (share)||345,855,440|
|Net Earnings to Total Income||29.2%||-27.0%||12.3%|
|Return on Average Total Assets||5.5%||-2.0%||1.6%|
|Return on Average Total Shareholders' Equity||8.1%||-3.0%||2.5%|
|Debt to Equity (times)||0.45||0.53||0.54|
|Book Value per Share (Bt.)||8.11||7.74||8.16|
|Consolidated Financial Statements (Quarterly)||Q4-2019||Q1-2020||Q2-2020||Q3-2020||Q4-2020||Q1-2021||% QoQ||% YoY|
|Revenues from business operation||77.4||60.1||279.9||74.7||137.3||89.1||-35%||48%|
|Costs and Expenses|
|Business operation costs and expenses||43.9||53.3||103.3||66.8||60.4||42.9||-29%||-20%|
|Servicing and administrative and other expenses||11.2||34.6||1.1||11.0||8.0||27.0||238%||-22%|
|Allowance for expected credit loss/Impairment loss on investment||26.8||-||-||-||61.7||(8.2)||-113%||-|
|Total costs and expenses||108.3||112.4||128.7||103.9||203.1||82.8||-59%||-26%|
|Profit (loss) from operations||(21.8)||(44.5)||155.2||169.7||(64.9)||7.1||111%||116%|
|Share of profit(loss) from investments in associated||(27.1)||(18.3)||6.7||33.6||8.8||0.7||-92%||104%|
|Income tax - income (expense)||(0.7)||4.6||(29.0)||(24.8)||26.2||(9.2)||135%||300%|
|Net profit for the period||(49.6)||(58.2)||132.9||178.5||(29.9)||(1.4)||n.m.||n.m.|
|Earnings per Share (Bt.)||(0.14)||(0.17)||0.38||0.52||(0.09)||(0.00)||n.m.||n.m.|
|Consolidated Financial Statements||31/12/2019||31/03/2020||30/06/2020||30/09/2020||31/12/2020||31/03/2021||% QoQ||% YoY|
|Total Liabilities and Shareholders' Equity|
|- Total Liabilities||1,421.3||1,396.9||1,593.0||1,481.1||1,261.9||1,164.4||-7.7%||-16.6%|
|- Total Shareholders' Equity||2,675.4||2,643.9||2,750.3||2,878.2||2,806.4||2,704.4||-3.6%||2.3%|
|Total Liabilities and Shareholders' Equity||4,096.7||4,040.8||4,343.3||4,359.3||4,068.3||3,868.8||-4.9%||-4.3%|
|Issued and paid share capital(share)||345,855,440|
|% QoQ||% YoY|
|Net Earnings to Total Income||-57.3%||-85.7%||46.8%||65.2%||-21.6%||-1.6%|
|Return on Average Total Assets||-1.2%||-1.4%||3.2%||4.1%||-0.7%||0.0%|
|Return on Average Total Shareholders' Equity||-1.8%||-2.2%||4.9%||6.3%||-1.1%||-0.1%|
|Debt to Equity (times)||0.53||0.53||0.58||0.51||0.45||0.43|
|Book Value per Share (Bt.)||7.74||7.64||7.95||8.32||8.11||7.82||-3.6%||2.3%|
EPS (ROLLING 12 MONTHS)
TOTAL SHAREHOLDERS’ EQUITY
BOOK VALUE PER SHARE
|Period||Amount||XD Date||Payment Date|
|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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