Annual Report from 1 January 2020 to 31 December 2020
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Digital Telecommunications Infrastructure Fund 2020 Annual Report From 1 January 2020 to 31 December 2020 2020 Annual Report - Digital Telecommunications Infrastructure Fund Message from the Asset Management Company April 5, 2021 To Unitholders, SCB Asset Management Co. Ltd. would like to submit the 2020 annual report of the Digital Telecommunications Infrastructure Fund (“The Fund”) for the period between 1 January 2020 and 31 December 2020 to unitholders. In 2020, SCB Economic Intelligence Unit (SCB EIC) estimated the Thai economy to contract by -6.1% YoY due mainly to the Covid-19 pandemic that had sparked in Q1/2020 before spreading its wings and affecting the Thai and global economies. However, in Q4/2020, the Thai economy recovered at a much better rate than anticipated thanks largely to the recovery of private sector consumption, export and increasing inventories. The contraction rate in Q4/2020 was down to -4.2% YoY, which was lower than the market estimate (EIC’s estimate was -5.4% YoY). As a result, the Thai economy experienced -6.1% contraction YoY in 2020. The reason the Thai economy in Q4/2020 bounced back more strongly than anticipated was partly due to the private sector consumption, which quickly resumed as a result of the government’s stimulus packages through several schemes such as Travel Together, Half/Half and Shop and Enjoy the Return. The recovery of the country’s export sector clearly improved the production of its industry sector. In Q4/2020, the Manufacturing Production Index (MPI) fell -0.9% YoY, which also improved investment atmosphere in the export sector. The overall private sector investment suffered merely -3.3% YoY as compared to -10.6% YoY the previous quarter. In addition, an increase of changes in inventories was also another factor that narrowed down the contraction of the Thai economy in Q4/2020. Major products with increasing inventories in Q4/2020 were paddy, gold and products for computer manufacturing. Meanwhile, the tourism industry, which is a main engine of growth in terms of economic values and employment, remains far from recovery. Although measures to welcome foreign visitors have been issued, their roles remain minimal. Although foreign visitors have been allowed for long-term stay since October 2020, only 1,200 visitors are let in each month. As a result, the number of tourists in 2020 is expected to remain unchanged from the previous estimate of 6.7 million. On the bright side, although the tourism sector that depends on foreign travelers remains lackluster, local tourism scene is quickly recovered thanks largely to accumulated demands after months of lockdown. For the 2021 economy outlook, SCB EIC expects the Thai economy to slowly recover, albeit with a number of risks. In its latest estimate, the EIC expects the Thai economy to witness its expansion in 2021 at around 2.2%. The main obstacle for a better growth is tourism activity, as the return and recovery of foreign visitors is likely to be slower than expected. Although several countries start injecting Covid-19 vaccines to their citizens 2020 Annual Report - Digital Telecommunications Infrastructure Fund and Thailand may allow those being vaccinated to enter the country with less stringent quarantine restrictions, international travel will clearly recovery only when countries of origin already develop herd immunity. SCB EIC expects developed countries to have herd immunity against Covid-19 during Q2-Q3/2021 while developing countries in Asia, where Thailand’s main target groups of travelers are, will gradually develop herd immunity from Q4/2021 (i.e. China) to Q4/2022 (i.e. CLMV). For Thailand, EIC expects the country to start injecting Covid-19 vaccines in March 2022 with Sinovac’s vaccines, of which first lots in a limited number will arrive in late February 2021. More extensive vaccination to Thai people however should commence in May and June after the Thai FDA accredits vaccine manufacturing standards to Siam Bioscience Co Ltd for its production of the AstraZeneca vaccine. Thailand is expected to develop herd immunity in Q1/2022. Export meanwhile is expected to slow down during the first half of the year in line with the downturn of the global economy following the ravaging return of a new Covid-19 strain, which seems to be easier to spread. Several countries started exercising stringent lockdown measures at state levels again. In addition, the appreciation of Thai Baht compared to other regional currencies will put pressure to the recovery of Thai exports in the near future. EIC expects Thai Baht as of end of 2021 to remain appreciate and stay within the range of Baht 29.5-30.5 per US dollar. External factors such as the tendency for the global economy to recover means demands for safe assets such as US dollar will fall and capital will tend to move to emerging markets including Thailand. EIC expects export to expand by 4.0% YoY this year. Domestic purchasing power is expected to experience a slow recovery due to the return of Covid-19, which will put even more pressure to current scarred conditions faced by the Thai economy such as business closure, unemployment and increasing household debts. This will directly shred purchasing power of the general public. Aside from these current economic malaise, other factors that will prevent the private sector consumption from recovery are precautionary saving due to high uncertainty, which makes people save more than usual. This behavior means household spending will only gradually recover. In addition, high household debts and more stringent loan approvals by financial institutions will keep the recovery of the private sector consumption down especially the consumption of durable goods in the near future. However, the government will play a pivotal role to sustain the Thai economy this year. In the latest development, the government has approved the We Win scheme and the Section 33 scheme to rehabilitate more than 40 million Thais affected by the Covid-19 pandemic for a total of more than Baht 250 billion. These measures are expected to assist the public at a certain level. It is likely that the government will issue additional subsidy measures during the rest of the year to boost the economic recovery. With regard to monetary measures, Bank of Thailand (BOT) still continues to implement relaxation measures. So far, the BOT has extended measures to assist debtors from Phrase 2, which was already expired on December 31, 202, to June 2021. It is expected that criteria for soft loans will be more lenient to induce more lending. 2020 Annual Report - Digital Telecommunications Infrastructure Fund In term of the policy interest, EIC expects the Monetary Policy Committee (MPC) to retain the interest at 0.5% in 2021, as the recovery of the Thai economy remains slow, patchy and is highly uncertain. Household and business sector debts will continue to increase following the crisis. As a result, keeping the interest rate low is necessary to reduce the interest burden and to help the economy to recover to a certain extent. Risk factors worth monitoring is 1) duration for keeping the second wave of Covid-19 under control; 2) delay of extensive vaccination in Thailand; 3) existing economic scars that may jeopardize the financial system as payment default keeps increasing; 4) political stability affecting investment confidence; 5) draught seen from historically low levels of water om existing dams; and 6) Rapid appreciation of Thai Baht compared to those of competitors, which may affect the recovery of both export and tourism sectors. For the overview of the telecommunications industry, the mobile phone industry witnessed continued growth in 2020. Service revenues of mobile operators rose 6% YoY, which was higher than the average between 2015-2019 of around 5% CAGR. The growth was thanks to consumers switching to post-paid services and the increase of ARPU resulting from 5G commercial launch. Meanwhile, data use continues to grow as a result of new generations of consumers increasingly preferring smartphones and internet access via mobile phones, making data service incomes even more likely to increase. In the medium term between 2022-2024, SCB EIC expects service revenues to grow at around 4% CAGR, which was down from the past five-year average (2015-2019) of around 5% CAGR, as mobile phone access starts to reach its maturity. However, service revenues will benefit from the number of 5G general users, who have increasingly embraced the technology, as well as new services to be launched with the introduction of 5G technology. What needs to closely monitor will be (1) the return of 700 MHz and 26 GHz, (2) NBTC’s new round of frequency bidding; and (3) new services bundled up with the introduction of 5G technology and the merger between TOT and CAT. In 2020, the fixed broadband internet market grew 7% YoY, which was down from the five-year average (2015-2019) of 13% CAGR. The fall was due mainly to the delay of the Zone C+ internet project and pressure to launch 5G earlier than expected. In 2021, a number of fixed broadband internet users is likely to increase 9% YoY from 10.5 million to 11.4 million, which however is down from 2019’s growth rate of 12%. However, although the growth rate in 2021 tends to weaken, the market is very much driven by new consumer behaviors under the New Normal lifestyle, which intensifies the use of fixed broadband internet, as well as pricing competitions that makes the fixed broadband internet service more accessible. On the negative note, the market is pressured by weakening private sector consumption, delay of the Zone C+ internet project and the fixed wireless access service.