Straco Corporation Ltd’s Latest Earnings: Strong Growth From the Singapore Flyer, But Some Caution Needed

Straco Corporation Ltd  (SGX: S85) reported its fiscal fourth-quarter earnings yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

Straco is an owner and operator of tourism assets in China and Singapore. In China, the company has attractions that include the Shanghai Ocean Aquarium (SOA), Underwater World Xiamen (UMX), and Lintong Lixing Cable Car. As for Singapore, Straco has a majority stake in the iconic observation wheel, the Singapore Flyer.

You can read more about the company in here or catch the results from its previous quarter here.

Financial highlights

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

  1. Revenue for the fourth-quarter rose by 22.7% year-on-year to $23.8 million. For 2015, Straco recorded $127.7 million in revenue, up 38.3% from 2014.
  2. Profit attributable to shareholders for the reporting quarter did better, jumping by 41.5% to $6.3 million. For the full year, Straco ended with $49 million in profit, a 30% increase from the previous year.
  3. Consequently, Straco’s diluted earnings per share (EPS) leapt by 41.2% from 0.51 cents in the fourth-quarter of 2014 to 0.72 cents in the reporting quarter. For 2015, Straco’s diluted EPS had grown by 29% to 5.67 cents.
  4. For the full year, cash flow from operations came in at $65 million with capital expenditures working out to be $3.9 million. The low capex gave the tourism asset operator a healthy $61.1 million in free cash flow. These figures represent solid growth compared to 2014 when Straco had free cash flow of $35.8 million ($37.0 million in cash flow from operations and $1.2 million in capex).
  5. As of 31 December 2015, the firm had $136.5 million in cash and equivalents and $73.9 million in borrowings. This gives a net cash position of $63.9 million. This compares favorably with the $ 112.5 million in cash and equivalents and $93.4 million in borrowings recorded on 31 December 2014.

In all, Straco’s top-line and bottom-line had benefitted in 2015 compared to the previous year mainly due to new sales and profits flowing in from the Singapore Flyer (the asset was acquired only in November 2014). This has also resulted in stupendous growth in free cash flow as well as a stronger balance sheet.

Straco’s board of directors had proposed a final dividend of 2 cents per share together with a special dividend of 0.5 cents per share. The total payout of 2.5 cents per share for 2015 represents a 25% increase from the 2 cents per share dividend seen in 2014.

Operational highlights

The revenue increase for the reporting quarter was supported by new contributions from the Singapore Flyer. This was partially offset by lower revenue from SOA and UMX, which may be something to be concerned over if it becomes a prolonged trend. In all, Straco’s collection of tourism assets had experienced a 17.2% year-on-year jump in overall visitor arrivals to 939,000 for the reporting quarter.

Straco Corporation’s Executive Chairman, Wu Hsioh Kwang, had given the following commentary in the earnings release for Straco’s business performance in 2015:

“2015 marked a new chapter for our Group as it was our first year of managing an attraction in Singapore. With the continuous hard work of the management and staff at Straco Leisure, Singapore Flyer achieved positive results and contributed approximately 19% of our Group’s profit for FY2015. Our China businesses, in particular SOA continues to achieve positive growth in visitor numbers and profitability while UWX’s profitability was lower amidst regulatory changes in the operating environment.”

Judging from Straco’s comments regarding its outlook, it appears that the company remains steadfast about its business prospects in the midst of lower visitor counts for its China attractions. These are the company’s comments in the earnings release:

“In 2015, the country [China] records over 4 billion domestic tourist visits and 120 million outbound tourist visits, with tourism receipts exceeding 4 trillion Yuan, ranking it top of the world. The Chinese government will strive to implement national policies in support of tourism reform and development, speed up the building of tourism infrastructure and public service capacity, and strongly promote rural tourism. These augur well for the Group’s attractions in China.

In Singapore, it was forecasted that growth outlook will remain tepid in the next six to nine months, before an improvement in the later part of 2016 can be expected, bringing an overall GDP growth of 2.1% for 2016.

On the tourism sector, it was recently reported that Singapore was the second most popular Asia-Pacific destination among international visitors last year, and ranked third in terms of total spending of international visitors. In addition, as the city will play host to several prominent medical congresses in 2016, this will benefit the industry. From January to November 2015, tourist arrivals was 13.8 million, a marginal increase of 0.4% compared to the corresponding period.”

As suggested in Straco’s comments, there are several future business development opportunities for the company.

Foolish take away

At its closing price yesterday of $0.80, Straco Corporation traded at around 14.1 times trailing earnings with a dividend yield of 3.1%.

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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.