Straco Corporation Ltd’s Latest Earnings: What Investors Need to Know

On Wednesday evening, Straco Corporation Ltd  (SGX: S85) released its fiscal second-quarter financial results. The reporting period was from 1 April 2016 to 30 June 2016.

Straco is a developer and operator of aquatic-related facilities and tourism-related assets. Currently, its main operating assets include Shanghai Ocean AquariumUnderwater World Xiamen, and the Singapore Flyer. The first two are located in China while the third is Singapore’s iconic observation wheel.

For the results of Straco’s previous quarter, you can check out here.

Financial and business highlights

Let’s first have a brief glance at some of the latest financial numbers from the attractions company:

  1. Revenue came in at S$27.9 million for the three months ended 30 June 2016. This was a 5.2% year-on-year decline. On a six-month basis, revenue inched down 0.5% year-on-year to S$54.3 million.
  2. But, net profit fell by a larger amount of 11.6% to S$9.3 million for the quarter. On a six-month basis, net profit slipped by 8.2% to S$17.6 million.
  3. Free cash flow for the reporting quarter was at S$13 million (operating cash flow of S$13.5 million minus capital expenditure of around S$0.5 million) while the selfsame figure a year ago was S$13.7 million (operating cash flow of S$14.8 million and capex of S$1.1 million).
  4. Straco ended the second-quarter of 2016 with S$124.7 million in cash and total borrowings of just S$67.9 million. This is an improvement over a year ago when there was S$108.8 million in cash and S$79.9 million in debt.

Straco attributed its lower revenue to a drop in visitors to Shanghai Ocean Aquarium and a lower yield at Underwater World Xiamen. These were partially offset by higher revenue from the Singapore Flyer.

Straco said that for the three months through 30 June 2016, overall visitation to all its attractions decreased by 7.2% year-on-year to 1.14 million visitors.

The road ahead

Despite the lower revenue, profit, and cash flows seen in the reporting quarter, Straco appears upbeat about its future prospects. In the earnings release, the company said:

“The National Bureau of Statistics of China reported that China’s gross domestic product (“GDP”) grew 6.7% in second quarter of 2016 from a year ago, unchanged from the previous quarter and also in line with the government’s target range of 6.5% to 7% for this year.

In Singapore, the economy grew 2.2% in the second quarter of 2016, with steady growth in the services sector. In its drive to boost tourism growth, the government has set aside $700 million to a third tranche of the Tourism Development Fund from 2016 to 2020, focusing on product development, technology adoption and innovation, and upskilling the tourism workforce.

In a statistics report from Singapore Tourism Board, the number of tourist arrivals from Jan-May 2016 grew 13.3% compared to the same period in 2015.

Despite the continued economic slowdown and uncertainty, our flagship attractions will continue to be a main draw for tourists.”

These being said, investors may also want to pay attention to the company’s assets in China. As mentioned, Shanghai Ocean Aquarium saw fewer visitors in the second-quarter of 2016 when compared to a year ago.

Straco’s shares closed Wednesday evening at a price of S$0.81 each. This gives the company a trailing price-to-earnings ratio of 14.6 and a trailing 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 Sudhan P owns shares in Straco Corporation.