Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis. The Straits Times Index (SGX: ^STI) has stepped-up by some 0.6% to 3,349 points today with 22 of its 30 constituents putting on gains. Let’s step outside the index for a closer look at three market beaters. Straco Corporation Ltd (SGX: S85) is up 3.4% to S$0.77. The tourism asset operator had made a big splash in Singapore’s tourism scene last week when it announced that…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis.
The Straits Times Index (SGX: ^STI) has stepped-up by some 0.6% to 3,349 points today with 22 of its 30 constituents putting on gains.
Let’s step outside the index for a closer look at three market beaters.
Straco Corporation Ltd (SGX: S85) is up 3.4% to S$0.77. The tourism asset operator had made a big splash in Singapore’s tourism scene last week when it announced that it would be partnering WTS Leisure in buying over the iconic Singapore Flyer for a total sum of S$140 million.
The tourist landmark would be 90%-owned by Straco while the remaining 10% would belong to WTS Leisure. For investors of Straco who are worried that the purchase might be a poor one, they do have a point.
After all, the previous owner of the Singapore Flyer, Singapore Flyer Pte Ltd, was placed under receivership last May as the landmark struggled to gain any serious traction amongst both tourists and local fun-seekers. In addition, Straco would very likely have to take on debt to fund the purchase given that it had only S$100 million in cash (with no borrowings) as of 30 June 2014; this would result in the company possessing a weaker balance sheet.
But that said, there’s also an argument to be made that the purchase could turn out to be an astute one after all. For a start, the Singapore Flyer had cost its original owners S$240 million to build back in 2005 (construction began that year and was completed in 2007); if we factor in inflation and rising land prices, a similar tourist landmark that’s built from scratch today would likely cost a lot more. Then, there’s also Straco’s track record in improving its assets to consider.
Currently, Straco’s main business resides in two aquariums located in China, namely the Shanghai Ocean Aquarium and Underwater World Xiamen. In particular, the latter was acquired in 2007 for around S$12 million with an effective acquisition cost of only S$9 million (the attraction held around S$3 million in cash). As of April 2013, Underwater World Xiamen has already generated total cash for Straco which amounts to around four times its acquisition cost. That’s a strong clue in pointing out the company’s real ability to improve tourism assets.
Silverlake Axis Ltd (SGX: 5CP) has climbed by 4.0% to S$1.29. The company, which provides solutions which form the backbone of a financial institution’s technological system, had reported its full-year earnings last week.
The figures were strong. For the fiscal year ended 30 June 2014 (FY2014), revenue grew by 26% to RM398.6 million while profit actually increased by 27% to RM249 million.
The company seems confident of its future, as its recent acquisitions – Merimen Group and CSVB – have helped improve its product range and capabilities. Raymond Kwong, Group Managing Director of Silverlake, explains:
“The recent acquisitions have enlarged our suite of mission critical enterprise software and services, and this places SAL in a strong position to support its customers in a broad range of industries as they innovate to improve their competitiveness in the digital economy. We can look forward to continued contributions from the synergies of the core business and those of the acquired businesses to the Group’s profitability in FY2015.”
In the current financial year (FY2015), Silverlake’s focus is on “software implementation projects from existing and new customers.” Investors should be heartened by that because each new completed project can potentially result in a new stream of recurring revenue, hence strengthening the company’s business.
OKH Global Ltd (SGX: S3N) rounds up the trio with a 3.5% gain to S$0.59. The integrated property developer’s full-year earnings were released last Thursday and there are huge improvements across the board.
Let’s run through the numbers. Revenue jumped from S$24.5 million a year ago to S$223.1 million; gross profit ballooned from S$70,000 to S$46.4 million; and net profit rocketed to S$25.8 million from a loss of S$1.7 million in the prior year. The big changes were due to the completion of the company’s industrial property, Primz BizHub, which received its Temporary Occupation Permit (TOP) in June this year.
Bear in mind though, that such massive gains would not be repeated every year. That’s because the company’s accounting requires it to essentially recognise profits in one fell swoop only when a project’s completed. The company explains:
“As the Group adheres to the accounting requirement known as the completion of contract (“COC”) method used for commercial and industrial properties, the Group’s financial performance may be significantly different in each financial period under review.”
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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.