What’s Next For This Winning Share After Growing 825% In Price In 6 Years? Part 1

Editor’s note: The third table in this article had an error concerning the order of the years involved. It has been corrected. The Fool regrets the error.

 Straco Corporation Ltd (SGX: S85) could be a company worth studying. The company’s shares are up 825% over six years from 1 January 2009 to 31 January 2015.

Over the same timeframe, the capital gains of the SPDR STI ETF (SGX: ES3) – a proxy for Singapore’s market barometer, the Straits Times Index (SGX: ^STI) – was “just” 81%.

Over its past five completed-financial years between 2009 and 2013 (the company’s financial year coincides with the calendar year), Straco has distributed a growing annual dividend totalling around 5.25 cents per share.

Financial Year Dividend per share (Singapore cents)
2009 0.50
2010 0.75
2011 0.75
2012 1.25
2013 2.00

Source: Straco Corporation’s Earnings Report

Although Straco’s shares have been climbing, as Foolish investors, we should look behind the curtains to understand its drivers of growth.

A closer look

Straco is an operator of tourism assets which are located in both China and Singapore (Straco’s Singapore-based asset – the Singapore Flyer – had only been bought in late 2014 and so had not contributed to the company’s business prior to that year).

Over 90% of the visitors to Straco’s China-based tourism assets are actually Chinese locals. The company’s revenue can be separated into the Aquarium segment and the Others segment. The former includes revenue from the Shanghai Ocean Aquarium and Underwater World Xiamen. Meanwhile, the latter would cover the operations of the Lintong Lixing Cable Car and show performances.

Straco - 1

Source: Straco Corporation’s Earnings Report

Straco Corporation’s revenue has grown at an annualized compounded growth rate of 20.5% in the past five completed-financial years from 2009 to 2013.

The main driver of revenue growth in that period had been the Aquarium segment, which had more than doubled its revenue since 2009. For 2013, the Aquarium segment made up 95% of Straco’s total sales. There was a revenue bump in the year 2010, and it was mainly due to the World Expo event which was held in China.

In the period 2009-13, growth in Straco’s revenue had been driven by an increase in visitors to its attractions and the occasional hike in entrance fees. My colleague Ser Jing had earlier summarized said trends. They are shown below:

Straco's visitor numbers

Straco's historical revenue and visitor growth

Source: Straco Corporation’s Earnings Report

Foolish summary

The exercise above is to look only at the revenue-dynamics for Straco. As a next step, we should observe if the top-line growth trickles down to the bottom-line in order for Straco to sustain its growth in share price.

But, that’s for the next article.

Straco closed last Friday at $0.74. At that price, the company’s traded at a trailing price-to-earnings ratio of about 16, and has a dividend yield of around 2.7%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.