Straco Corporation Ltd’s Latest Earnings: What Investors Should Know

Straco Corporation Ltd  (SGX: S85) reported its fiscal fourth-quarter earnings for the year ended 31 December 2014 yesterday. The reporting period was for 1 October 2014 to 31 December 2014.

Straco is an operator of tourism assets. In China, the company owns the Shanghai Ocean Aquarium, Underwater World Xiamen, and Lintong Lixing Cable Car. At the local front, Straco is the majority owner of the Singapore Flyer – the observation wheel was bought late last year.

You can catch Straco’s second quarter earnings here and read more about the company in here and here.

Financial highlights

Here’s a rundown on Straco’s latest financial figures:

  1. Overall revenue for the fourth quarter rose by 32.8% year-on-year to $19.4 million. Straco finished 2014 with $92.3 million in annual revenue, almost 26.7% above 2013’s revenue of $72.8 million.
  2. For the fourth quarter, profit attributable to shareholders fell by 21.3% to $4.4 million compared to the same quarter a year ago. For the full year, profit came in at $39.3 million, up 10.9% from 2013. The profit decrease was mainly due to big spikes in operating expenses and administrative expenses and a one off expense related to the purchase of the Singapore Flyer.
  3. For the same reason above, Straco’s earnings per share (EPS) also fell 22.7% from 0.66 cents in the fourth quarter last year to 0.51 cents in the reporting quarter. Straco’s 2014 EPS was $4.38 cents, representing a 9.2% increase from 2013’s EPS of $4.01.
  4. For the full year, cash flow from operations came in at $37 million with capital expenditures clocking in at $1.2 million. The low capex gave the tourism asset owner a healthy $35.8 million in positive free cash flow, up from $34.2 million in 2013.
  5. As of 31 December 2014, Straco had $112.5 million in cash and equivalents and $93.4 million in debt. This is a weaker balance sheet; a year ago, Straco had $108 million in cash and zero borrowings.

In short, Straco’s revenue benefited from new contributions from the Singapore Flyer. The tourism asset manager has taken on significant debt to finance the Singapore Flyer acquisition, but still boasts the ability to generate copious amounts of free cash flow.

A final dividend of 2 cents per share was also recommended for 2014, unchanged from 2013.

Operational highlights

Straco’s Aquarium segment – consisting of Shanghai Ocean Aquarium and Underwater World Xiamen – saw visitors increase by 2.9% from a year ago to 609,000 for the fourth quarter.

For 2014, the segment saw its revenue grow by 23.1% to $84.8 million. On the pre-tax profit side, the Aquarium segment’s profit was up 27.8% to $62.6 million.

The Giant Observation Wheel segment recorded its first $3.7 million in revenue for the fourth quarter. This represents revenue from the Singapore Flyer since 28 November 2014. Pre-tax profit for the Giant Observation Wheel segment was a negative $598,000.

Overall, profit for the quarter suffered from higher operating and administrative expenses as well as $1.98 million in one-off expenses.

Straco’s Executive Chairman and majority owner, Wu Hsioh Kwang, added the following commentary for 2015 and gave some insight for the outlook ahead:

“We are pleased with the overall result as both revenue and net profit increased compared to the corresponding period. Increased visitations were registered at both SOA [Shanghai Ocean Aquarium] and UWX [Underwater World Xiamen]. Despite slower economic growth, we expect that domestic travel in China will continue rising in line with the government’s initiatives for the tourism industry.

We generated net operating cash flow of $37 million for the year, slightly higher than last year. With the addition of the Singapore Flyer, an iconic attraction in Singapore, we are confident that the outlook for our Group remains positive.”

Foolish take away

At its closing price yesterday of $0.755, Straco Corporation traded at around 17.2 times its latest trailing earnings and offers a dividend yield of 2.6% (based on its 2014 pay out of 2 cents per share).

The looming question ahead for Straco is whether it can turn the Singapore Flyer into a profitable venture.

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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.