The 3 Ways Straco Corporation Ltd Makes Its Money

Straco Corporation Ltd (SGX: S85) is a tourism asset operator with operations in both China and Singapore.

In China, the company has attractions such as the Shanghai Ocean Aquarium, Underwater World Xiamen, and Lintong Lixing Cable Car under its umbrella. As for Singapore, Straco bought a majority stake in the iconic Singapore Flyer – one of the largest observation wheels in the world – in late 2014.

The company has enjoyed great business growth over the past five years, with its revenue and profit jumping by a total of 177% and 197%, respectively, from 2011 to 2015.

Its stock price has followed suit – since the start of 2011, Straco’s shares have gained 417%. For perspective on that return, the broader market in Singapore, as represented by the Straits Times Index (SGX: ^STI), had lost 12% over the same timeframe.

Let’s take a closer look at how exactly Straco makes its money. Knowing this can give investors a better understanding of the risks it is facing and the opportunities it has for future growth.

Three ways of making money

Following the Singapore Flyer acquisition, Straco classifies its businesses into three segments, namely, Aquariums, Giant Observation Wheel, and Others. You can see the revenue and profit contributions from each segment in 2015 in the table below:

Source: Straco’s 2015 annual report

The Aquariums segment represents the operation of aquatic-related facilities and tourist attractions, including sea mammal performances. As you may have guessed, this is where the Shanghai Ocean Aquarium and Underwater World Xiamen is housed. Retail activity and the sale of food and beverages are auxiliary revenue streams that arise from the operation of said attractions.

In 2015, Aquariums accounted for 68% of Straco’s revenue and 82% of the total segmental pre-tax profit.

The next largest segment is the Giant Observation Wheel, responsible for 29% of Straco’s revenue in 2015 and 16% of total segmental pre-tax profit. This is simply the business related to the operation of the Singapore Flyer and its surrounding retail space.

The Others segment is mainly related to the company’s operation of the Lintong Lixing Cable Car asset.

Key Foolish takeaways

One key takeaway here is that Straco is heavily exposed to China’s tourism industry. Developments in that area would be important to watch for investors.

Events in Singapore’s tourism sector are also important. One of the big stories in Singapore dealing with tourism is the Zika virus outbreak that started in August. The Singapore Tourism Board released a statement last week that said “Singapore remains a safe travel destination” and that Singapore has been praised by the World Health Organisation for its handling of the outbreak.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.