Friday, 10 June 2016

Straco Corporation

It is ranked #8 of 729 things to do in Singapore and has an average rating of 4.5 stars based on 10500 reviews on TripAdvisor. This popular attraction is none other than Singapore Flyer (SF). Straco acquired SF in Nov 2014 for 140 million from Singapore Flyer Pte Ltd. It has a 90% stake of the attraction which was built at a cost of 240 million and opened in 2008.

A shrewd purchase by the management and within one year from its acquisition, it has managed to generate profit from the attraction that has caused the previous owner to go bankrupt.

Reading about Straco and its past annual reports, I wish I have gotten to know this company much earlier. Since listed in 2004, its revenue has grown by 7 times, while net profit and free cash flow have grown more than 10 times. It has also consistently paid out 30% to 50% of its income as dividend. Hence, dividend has grown by 6 times over the past 10 years. 

Straco is a developer, operator and investor of tourist attractions. Before the acquisition of SF, Shanghai Ocean Aquarium (SOA) was their prized asset. Its Lixing cable car service (LLX) ferries visitors to a mid-mountain where Chao Yuan Ge (CYG) located. Underwater World Xiamen (UWX) was acquired in 2007.

On TripAdvisor, SOA is ranked #31 of 1306 things to do in Shanghai with an average rating of 4 stars based on 644 reviews. There are more mixed reviews of the aquarium as compared to SF. The good includes the beautiful and wide selection of aquatic life. The complaints are its entry price, overcrowding of attraction and the tanks are too small for the aquatic life. As for UWX, it received even less reviews as it probably caters more to domestic travellers.

Crunching the numbers

As seen from the data, the group net profit margin for past 5 years is high at around 40% and ROE is around 20% for the past 3 years. With its FCF mirroring or even higher than its NP, the group should be able to sustsin its dividend. Dividend might not increase  in the next few years as cash generated will be used to pare down its debt.

Based on past history, management has shown that they are capable in running a good attraction and chairman Wu Hsioh Kwang is able to spot good potential attraction to develop. Wu currently holds 56% of the company with another 22% held by China Poly Group.

Recent Results
The group's 2016 1Q revenue increased by 5% but net profit dropped by 4%. The drop is attributed to the opening of Chinese restaurant st SF and sales tax for SOA. The sales tax is pending waiver.

With the exception of UWX, the other attractions saw an increase in visitor numbers.

Related News
Shanghai Disney is opening on 16 June 2016. Management sees this positively as there might be a spillover effect.

Shanghai Hai Chang Polar Ocean World will open in 2017. Management feels that SOA central location would have insulated it from this competition.

My Take
The company's past records have given me confidence of its growth. I am hopeful that they would develop SF into a more vibrant attraction and in turn generates more cash from it. The competition to SOA is something to take note of and I will continue to monitor the company's report on it.

I had increased my stake slightly over the past 2 months. I  will probably hold on to my current holdings to participate in the company's growth.

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