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. 

Business

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.

Management
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.

Portfolio June 2016

With all the actions over the past half a year, this is my current portfolio. Hopefully, there will be less actions in the second half of the year.

The current dividend yield of my portfolio is 4.8%.

For Income (57.1%)

REIT (39.8%)

Parkway Life REIT

Starhill Global REIT

Capital Retail China Trust

CDL Hospitality Trust
Fraser Centrepoint Trust

Dividend Stocks (17.3%)

SGX

ST Engineering

Vicom

For Growth and Punting (39.3%)

Growth Stocks (31.2%)

Straco

Best World

Raffles Medical
Food Empire

Punt (8.1%)

Valuetronics
Sunningdale Tech
Cityneon

Based on the above, I was reminded that I am drawn to businesses that are linked to health, retail and service sectors. Exceptions are the dividend stocks in which my perception of the companies' ability to sustain its dividend seems to be more important. Of course, I have two stocks Valuetronics and Sunningdale tech in the manufacturing sector. Classified under punt as I have yet to spend too much time to understand their business even though both have positive reports and pay regular dividend.

Portfolio update

My actions over the past 9 months (September 2015 to June 2016)

Sold Kingsmen because of continuous challenge faced in business.

Sold M1 for challenges faced and my uncertainty about Telco business.

Sold CDW as I am unsure of its dividend sustainability.

Sold Design Studio to raise fund for other ideas.

Sold The Hour Glass to raise fund for other ideas.

Sold Croesus REIT to increase stake in other REIT.

Reduced ST Engineering for other ideas.

So what are the other ideas?

Bought Straco, a company that handle tourist attraction for its excellent growth over the past 10 years. It acquired Singapore Flyer in end 2014. More about Straco in the next post.

Bought Best World, a direct sale company for beauty products. I sold it in 2013 due to poor performances in various markets. Bought for its improved and positive business in Taiwan and China for 2015. 

Bought SGX for its stable dividend due to its strong cash position and ability to generate free cash flow.

Bought Raffles Medical for its growth story and my personal belief that healthcare segment will continue to grow.

Bought Vicom for similar reason though unsure how the increase in de-registration of cars fog next 2 to 3 years will affect the business.

Bought a small stake in Valuetronics after reading about it in Nextinsight Forum. 

Bought CDL Hospitality REIT. Believe that the price offered good value for its underlying assets and it will turn around in the next few years.

Increase stake in Food Empire as it expands its business beyond Russia n Ukraine. Also, it is going into coffee capsule production and through joint venture acquired a stake in Korea coffee chain Caffebene.

Increase stake in Parkway REIT due to personal believe in healthcare segment and its strong growth over the past 10 years.

2015 Performance

Oops, this is 6 months overdue.

Last September, I reviewed my target and strategy and it is followed by reviewing of my holdings in my portfolio. There were quite a bit of churning as I re-build my portfolio to fit my new strategy. I thought it was more or less settled by December but in the first half of the year there were still quite a bit of changes. This only shows that I was still quite hazy on my buy decisions. Something which I would need to work on. More on this in the next post.

Back to last year performance. My portfolio did not escape the drop that the general market suffered. There was a 9.6% decrease in portfolio value over the year. Slightly better than the benchmark of SPDR STI ETF which dropped by 11.9%. I am glad it performed much better over a 10-year period.









The drop pushes  me to take a hard look at my portfolio. It provides an impetus for me to have a clearer idea what are the businesses that I want to hold. As you will read in my next post, I am churning quite a bit recently. Hopefully, this will stabilise soon and I will have a few core stocks that I will hold for long term.

At the end of the year, I was optimistic that 2016 performance will be better.

Kingsmen Creatives

 

Kingsmen caught my attention 9 years ago. My first purchase was in December 2006 and I accumulated more. over the next few years. However, I sold out (emotion at play) in December 2012 as share price tumbled due to fraud. I can't quite remember the details but reading through valuebuddies forum, the amount involved was small compared to the business and these were isolated cases.

I re-established a position in the company in mid-2013 and purchased more during the recent selldown. Here is my take of the company.

Business
Kingsmen provides clients with integrated solutions in Exhibitions & Museums, Retail & Office Interiors, Research & Design and Integrated Marketing Communications in the Asia Pacific region. Retail clientele include Christian Dior, Fendi, H&M, Shilla, Tiffany & Co., Uniqlo and others. Having seen their work in the shopping centres, I am impressed by their work. Some of the events that the company are involved in are F1 Sg, Singapore Sports Hub, Singapore Airshow and BNP WTA Finals. 

As seen from the above, Kingsmen has established an impressive list of International clientele base that allows the company to generate recurring revenue and expand together with them.

Crunching the Numbers
The image below shows the key financial figures of the company over the past 10 years. 2015 figure might not be accurate as it is based on the half-yearly results.

As seen from the data, revenue has tripled over the decade but the growth has slowed over the past 5 years. Net profit growth is more lumpy and again for the last 5 years, the numbers do not look as rosy. The low net profit margin of about 5% to 6% shows that the company does not have much pricing power and is probably in a competitive industry. 

Return of Equity has been around 20 plus percentage but has dropped along the years. The company does not have much capital expenditure except on years when they are purchasing land and/or building new factory. This has resulted in a pretty healthy free cash flow over the past 5 years. The company has also been paying out about 40% to 50% of its income for dividend. For the latest half-year report, the company has cut its interim dividend from 1.5 cents to 1.0 cent.

Management
The two founders of the group Benedict Soh and Simon Ong still hold about 50% of the shares. The public face is Benedict who is the executive chairman and has featured in various interviews by the media over the year. While I have not attended any of the AGM or met any of them before, I am pretty confident of the team based on how the company has reported their results. 

My Take
The company has enjoyed a period of good growth from 2006 to 2011 but over the last few years, it seems to struggle to maintain the momentum. I perceive the company is going through a period where it is preparing for the next phase of growth. The Executive Chairman's statement in last year annual report provides a glimpse of their current situation.

2014 was a fruitful year as we made strides in ramping up our production and human resource capabilities in anticipation of increasing demand for our products and services around the world. The acquisition of the Johor property was a strategic step towards establishing a permanent manufacturing base. We continued to upgrade and align the skills and knowledge of our people through the Kingsmen Academy, with training courses tailored to develop well-rounded individuals attuned to our business needs. We also sought to extend our expertise in the design and production of shop fixtures and decorations to the United States with the incorporation of our subsidiary, Kingsmen Projects US, in California in 2014. This is in line with our long-term view of the growth prospects for our business, as we continue to build and invest in facilities, processes and manpower. 

- Benedict Soh, 2014 AR

Will they succeed? I definitely hope so since I have a stake in them.

My Action

I am holding on to my current holding and will continue to monitor the progress of the company through its quarterly report. I will not be adding more shares as it is already taking up near to 16% of my portfolio and there is no impetus for a higher stake. In fact, I might be reducing my holding if there is a need to raise cash to invest in another company that has a better story.