Straco Corporation Ltd Is Near A 52-Week Low

The last 12 months haven’t been kind to Singapore’s stock market as seen in how the Straits Times Index (SGX: ^STI) has slipped by around 15% to 2,880 points yesterday.

But if you thought that was bad, there have been companies that have fared even worse. One such firm is the tourism asset operator Straco Corporation Ltd (SGX: S85).

Based on their closing price of S$0.74 yesterday, Straco’s shares have fallen by 18% compared to a year ago and are sitting just 3 cents higher than a 52-week low of S$0.71.

For some context, Straco is an owner and operator of tourism assets in China and Singapore. In China, the company has the Shanghai Ocean Aquarium, 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 – one of the largest observation wheels in the world – in late 2014.

The way I see it, I think there may be two likely reasons behind Straco’s dismal stock market performance:

1) There was lower profitability at its Chinese assets in 2015. To the point, pre-tax profit from the company’s aquariums had slipped slightly from S$62.6 million in 2014 to S$62.3 million in 2015. A lower visitor count to the attractions amidst regulatory changes in the operating environment had played a role.

2) Growth may not be as strong in the future. Chinese officials have reported that China’s gross domestic product (GDP) had expanded by only 6.8% in the fourth-quarter of 2015, the weakest pace of expansion since the first-quarter of 2009. China’s 6.9% GDP expansion for the whole of 2015 was also the slowest in 25 years. There may be fears that a slowdown in China’s growth is bad news for Straco’s business.

On the other hand, there are actually positive things going on with Straco at the moment.

In late February this year, Straco released its 2015 full-year earnings and posted solid growth. Revenue for 2015 was up 38%, profit had a 30% increase, and free cash flow had soared by 71%. The company also ended 2015 with a strong balance sheet that had S$136.5 million in cash and just S$73.9 million in borrowings.

Moreover, my colleague Chong Ser Jing had wrote recently that Straco had been able to show solid growth in its free cash flow over the past five years.


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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 James Yeo owns shares in Straco Corporation.