It may or may not have been the biggest winner in Singapore?s stock market over the past five years since the start of 2010, but Straco Corporation Ltd (SGX: S85) would still deserve some special acclaim for the 635% gain in its share price to S$0.955 at the moment.
Within the same duration, the SPDR STI ETF (SGX: ES3) ? an exchange-traded fund tracking Singapore?s market barometer the Straits Times Index (SGX: ^STI) ? is up by only 14% to its current price of S$3.39.
Straco?s huge gains these past few years raises the question: Can it continue its winning ways?
It may or may not have been the biggest winner in Singapore’s stock market over the past five years since the start of 2010, but Straco Corporation Ltd (SGX: S85) would still deserve some special acclaim for the 635% gain in its share price to S$0.955 at the moment.
Within the same duration, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking Singapore’s market barometer the Straits Times Index (SGX: ^STI) – is up by only 14% to its current price of S$3.39.
Straco’s huge gains these past few years raises the question: Can it continue its winning ways?
To help answer the question, we can turn to an investing checklist that Peter Lynch had shared in his best-selling investing text One Up on Wall Street. In his 13-year tenure as head of the U.S. based Fidelity Magellan fund from 1977 to 1990, he had led the fund to generate annualised returns of 29%; at that rate of return, every $1,000 would have become more than $27,000 in 13 years! Such accomplishments lend tremendous weight to Lynch’s views on investing.
With that, let’s see what the checklist can tell us about Straco.
1. The Price-Earnings Ratio: Is it low or high for this particular company and for similar companies in the same industry (generally, low PEs are preferred)?
As a brief introduction, Straco’s in the business of owning and running tourism assets. At the moment, the company’s main assets are two aquariums in China (the Shanghai Ocean Aquarium and Underwater World Xiamen) as well as a local tourism landmark, the Singapore Flyer.
A company in Singapore with a similar type of business could be Genting Singapore PLC (SGX: G13); the firm owns another of Singapore’s tourism mainstays, Resorts World Sentosa.
Source: S&P Capital IQ; SPDR STI ETF website
As the table above shows, while Straco’s PE ratio is higher than that of the market average (bad), it’s far lower than what Genting Singapore’s carrying (good).
2. What is the percentage of institutional ownership? The lower the better.
Lynch had included this criterion because he believed that companies which flew under the radar of institutional investors (big money managers) would make for better bargains due to investor-neglect.
Straco is a company that will score well here as there’s simply not much room for institutional investors to attain a meaningful stake in the company.
As of 18 March 2015, Wu Hsioh Kwang, the executive chairman of Straco, and his wife, have a collective stake of 55.9% in the company. Meanwhile, China Poly Group Corporation, a long-time shareholder of Straco and a Chinese state-owned enterprise, has a 22.4% stake in the tourism asset owner.
3. Are insiders buying and whether the company itself is buying back its own shares? Both are good signs.
Sustained bouts of buying from insiders or the company itself could be an indication that the share is undervalued.
Since the start of its latest share buyback mandate on 29 April 2015, Straco has clawed back a total of 2.2 million shares of itself for more than S$2.13 million.
4. What is the record of earnings growth and whether the earnings are sporadic or consistent?
Source: S&P Capital IQ
This is an area Straco has excelled in: The company has not only been generating a profit consistently since at least 2007 (see table above), it has also logged a solid track record of growing profits.
5. Does the company have a strong balance sheet?
Financial strength is also something Straco doesn’t lack. As of 31 March 2015, the company had S$124 million in cash and equivalents and just S$91 million in borrowings. This gives rise to a solid net cash position of S$33 million.
6. Does the company have room to grow?
This is a key criterion in Lynch’s checklist as it’s very difficult for a company to create value for its shareholders if it does not have opportunities to expand its business.
Fortunately, Straco does seem to have some ample room for growth. As you can see in the table below, the company’s ticketing revenue growth has historically outpaced visitor growth, suggesting that the company’s Chinese aquariums (the Singapore Flyer was acquired only in November 2014) has some strong pricing power and popularity amongst tourists.
Source: Straco’s filings
The company has already announced price hikes for the aquariums that will take place in November this year, so it may help to provide further revenue growth.
Meanwhile, the Singapore Flyer acquisition has given a huge boost to Straco; in the first quarter of 2015, Straco’s revenue and profit had spiked by 71.5% and 60.5% respectively, largely due to the presence of the Singapore Flyer. If the company can improve the operations of the asset in the future, then it could be another nice avenue for growth for the firm.
A Fool’s take
In a roundup of the scores, we can see that Straco has ticked off most of the right boxes: It has low institutional ownership, been buying back its shares, consistent profit growth, a strong balance sheet, and healthy room for growth.
But, there are also some important risks to consider, like its high valuation in relation to the market average as well as the emergence of new tourist hotspots. To the latter point, Shanghai Disneyland and Shanghai Haichang Polar Ocean Park are two huge tourism projects that are slated for opening in the same city as Straco’s Shanghai Ocean Aquarium in 2016 and 2017, respectively. These new attractions may cause Shanghai Ocean Aquarium to lose its lustre.
All told, investors would need to weigh the risks and rewards with the firm in order to come up with an intelligent investing decision.
For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.
Like us on Facebook to follow our latest hot articles.
The Motley Fool's purpose is to help the world invest, better.
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 owns shares in Straco Corporation.