Is The Singapore Flyer A Good Buy For Straco Corporation Ltd?

singapore flyer

The Singapore Flyer, an iconic landmark in Singapore’s city-scape, is an orphaned child no more. Straco Corporation Ltd (SGX: S85) is going to be the new owner of the tourist attraction located at the Marina Bay area.

Singapore Flyer Pte Ltd, which owns the Singapore Flyer and the assets around it, was placed under receivership in May last year. Since then, many parties have expressed an interest in buying the attraction. Merlin Entertainment, the firm behind the London Eye and Madame Tussauds wax museums, was one such party. However, talks broke down between Merlin and the receiver in May this year.

Straco Corporation acquires The Singapore Flyer

It was then announced yesterday that the new owner of the distressed attraction will be Straco Corporation, a Singapore developer, operator, and investor in tourism assets. The company’s main attractions so far are two aquariums, namely the Shanghai Ocean Aquarium in Shanghai, China, and the Underwater World Xiamen in Xiamen, China.

Straco Corporation, through its subsidiary, Straco Leisure Pte Ltd, will be buying the Singapore Flyer and the lease of the property located at 30 Raffles Avenue for S$140 million. That’s a 42% discount to the building cost of S$240 million for the attraction.

Straco Corporation owns 90% of Straco Leisure while WTS Leisure Pte Ltd owns the remaining 10%. The acquisition will be funded through both borrowings and cash, in accordance to both companies’ respective ownership stakes in Straco Leisure.

As of 30 June 2014, Straco Corporation had no debt and holds S$100 million in cash. With such resources, the company would likely not run into any financial problems despite it having to resort to borrowings to fund the purchase of the Singapore Flyer.

How can the Singapore Flyer help Straco Corporation?

In any case, Straco Corporation has had great success so far with improving the operations of its tourism assets. In 2007, the company acquired Underwater World Xiamen for around S$12 million (the effective acquisition cost comes up to only S$9 million given that the attraction had around $3 million in cash). According to an article in Next Insight, the company has already “generated cash of around 4x the effective acquisition cost” of Underwater World Xiamen as of April 2013.

There are yet more clues to the improvements that Straco Corporation has made to Underwater World Xiamen. Even though the company does not give a breakdown of its revenue mix in terms of the different attractions it operates, total revenue for 2013 had grown by 32% year-on-year to S$72.8 million. Meanwhile, total visitor arrivals for Straco Corporation’s tourist attractions grew by 20.5% to a record 3.84 million. It’s hard to imagine that Underwater World Xiamen had not contributed to some of that growth.

Potential plans

The company’s Executive Chairman, Mr. Wu Hisoh Kwang, is very optimistic about the acquisition. The following are his comments on the topic:

“The Singapore Flyer is a defining Singapore attraction and represents an exciting opportunity to expand our presence in the region and contribute to the Singapore tourism industry. As a Singaporean company, we are especially proud to add this unique icon to our portfolio of high-quality assets. Our robust, long-term experience in the sector provides a crucial foundation for reinvigorating this world-class attraction. Future plans for the Singapore Flyer will be shared when Straco Leisure officially takes over. We look forward to working with the staff and tenants to take this icon into a new phase.”

Going forward, Straco Corporation would need to revamp and rejuvenate the attraction and its tenant mix in order to turn the distressed Singapore Flyer around. WTS Leisure, which has a 10% stake in the operation, could perhaps lend a helping hand too by ramping up its travel package promotions for the Singapore Flyer. WTS Travel, which is the tour group arm of WTS Leisure, runs a check-in counter at the giant observation wheel.

Zouk, an iconic establishment in Singapore’s nightlife scene whose lease at its current site expires at the end of the year, has also expressed interest in moving to the Flyer. Mr Wu told The Straits Times that he is open to discussions with Zouk.

Amusingly, my fellow Foolish colleague Chin Hui Leong noted that Straco Corporation could consider following in the footsteps of the organisers of Cannstatter Volksfest, an annual three-week beer festival in Stuttgart, Germany. Volksfest is purported to be the second largest beer festival in the world after Oktoberfest in Munich, Germany. One of the main attractions in the three-week long Volksfest carnival is the world’s largest mobile Ferris wheel, measuring 60 metres in diameter. Drinking and merrymaking near the Singapore Flyer sure sounds like a fun plan to me (until it isn’t!).

In any case, Straco Corporation has the blessings of the Singapore Tourism Board as the latter said that it “will work with Straco Leisure on their plans for the Flyer”.

Foolish Bottom Line

The market doesn’t seem too enamoured with Straco Corporation’s latest acquisition though as the company’s shares are down 6.1% to S$0.77 so far since Wednesday’s close. Trading in the company’s shares was halted yesterday pending the acquisition announcement.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in Straco Corporation Ltd.