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

Straco Corporation Ltd  (SGX: S85) released its fiscal second-quarter earnings report last Friday. The reporting period was for 1 April 2015 to 30 June 2015.

Straco is an owner and operator of tourism assets in China and Singapore. In China, the company has the Shanghai Ocean Aquarium (SOA), Underwater World Xiamen, and Lintong Lixing Cable Car attractions under its umbrella. As for Singapore, Straco had bought a majority stake in the iconic Singapore Flyer late last year.

You can catch the firm’s first-quarter earnings here. You can also read more about Straco in here and here.

Financial highlights

The following’s a quick rundown on the latest figures from Straco:

  1. Revenue for the second-quarter rose by a zippy 49.4% year-on-year to $29.4 million.
  2. Meanwhile, profit attributable to shareholders jumped by 25.6% compared to the same quarter last year.
  3. Consequently, Straco’s earnings per share (EPS) expanded by 24.5% from 0.98 Singapore cents in the second-quarter of 2014 to 1.22 cents in the reporting quarter.
  4. Cash flow from operations came in at $14.8 million with capital expenditures coming in at $1.1 million. The low capex gave the tourism asset operator a healthy $13.7 million in positive free cash flow for the reporting quarter. These figures also represent solid growth from a year ago when Straco had cash flow from operations, capital expenditures, and free cash flow of $10.1 million, $216,000, and $9.9 million, respectively.
  5. As of 30 June 2015, the firm had $108.8 million in cash and equivalents and $79.9 million in borrowings. This gives a net cash position of $28.9 million. This is an improvement from the net cash position of $19.1 million that Straco had at the end of 2014.

In all, Straco’s revenue continues to benefit compared to the previous year partly as a result of new sales flowing in from the Singapore Flyer (more on these shortly). Meanwhile, the positive free cash flow generated by Straco had helped it to facilitate a $10.8 million reduction in debt from the previous sequential quarter.

Operational highlights

The revenue increase for the reporting quarter was supported by higher receipts from  the SOA and new contributions from the Singapore Flyer.

Straco managed to enjoy a near-20% year-on-year jump in overall visitor arrivals to 1.23 million for the reporting quarter. That looks great, but investors must also be aware that the year-on-year increase is not an apples-to-apples comparison; the Singapore Flyer was not part of Straco’s portfolio in the second-quarter of 2014.

Straco’s Executive Chairman Wu Hsioh Kwang had given the following important comments in the earnings release regarding the firm’s reporting quarter:

“The acquisition of the Singapore Flyer has contributed positively to our Group’s performance. SOA continued to achieve positive growth in revenue and profit in the second quarter, while Underwater World Xiamen (“UWX”) performance continued to be hit by falling visitor numbers resulting from the changes in ferry regulations since last October and restriction on daily visitor numbers to Gulangyu Island…

…Since April this year, we have extended the operating hours of UWX to mitigate the effects of falling visitor numbers. At Singapore Flyer, we have strengthened our marketing team with new hires to improve sales; we will also continue to streamline processes, eliminate wastages and improve operational leverage to enhance profitability.”

Looking ahead, Straco believes it’s able to enjoy a number of tailwinds. Here’s what the tourism asset owner has to say on the topic in the earnings release:

“On the tourism sector, the China National Tourism Administration reported that China’s tourism expenditure grew 14.5% year-on-year to RMB1.65 trillion in the first half of 2015, while investment in the national tourism industry grew 28% to RMB301.8 billion.

It is expected that the industry will continue to enjoy high growth as China enters a new economic phase through reforms and consumers shift towards service consumption.

In Singapore, the outlook of the tourism sector remains good. In a recent media release, Singapore Tourism Board will be collaborating with Singapore Airline and Changi Airport Group on a two-year partnership to promote inbound travel to Singapore.

The three parties will jointly invest $20 million to promote the Singapore experience to leisure, business, and MICE audiences in more than 15 markets worldwide.”

Foolish take away

At its closing price yesterday of $0.97, Straco traded at around 19.4 times its trailing earnings and has a dividend yield of 2.1% thanks to its annual dividend of S$0.02 per share in 2014.

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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.