The Good And The Bad: What Investors Should Know About Straco Corporation Ltd’s Latest 2016 Results

Straco Corporation Ltd (SGX: S85) is a tourism asset operator with 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.

In late February, Straco reported its 2016 full year results. There are both positive and negative takeaways from the company’s latest earnings that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:

1. The overall result

Here’s a table showing some important numbers from Straco’s income statement for the quarters and years ended 31 December 2015 and 31 December 2016:

Straco income statement 2016
Source: Straco 2016 full year earnings release

In all, Straco’s financial performance in 2016 is weaker as compared to 2015 due mainly to a fall in the renminbi (RMB).

According to the company, the Shanghai Ocean Aquarium and Singapore Flyer delivered growth in revenues during the year. But, the higher revenues were more than offset by a decline in Underwater World Xiamen’s revenue; the attraction’s top-line was affected by a typhoon that hit Xiamen in September 2016.

2. The positives

Firstly, the Shanghai Ocean Aquarium and Singapore Flyer achieved better revenue in 2016, as mentioned earlier.

Secondly, Straco continues to generate significant amounts of cash from its businesses. In 2016, the company’s operating cash flow came in at S$67.1 million, about S$2 million higher than in 2015. Given the low maintenance capital expenditure required in Straco’s line of businesses (the company’s capita expenditure in 2016 was just S$3.8 million), the operating cash flows generated by the company can mostly be distributed freely to shareholders, used to strengthen the balance sheet, or used to invest for growth.

3. The negatives

Firstly, the weakened RMB is clearly a negative to Straco’s financial performance.  Though no one really has a crystal ball to tell whether the RMB will strengthen or depreciate in the future, changes in currencies would still be something for investors to keep an eye on.

Secondly, overall expenses are rising at a faster pace than revenue. This explains the bigger drop in Straco’s net profit as compared to revenue. The main culprit here is the increase in staff costs – investors may want to watch this development.

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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.