Straco Corporation Ltd: The Good And The Bad That Investors Should Know About Its 2017 Second Quarter Earnings

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

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

In mid-August, the company released its 2017 second quarter results. There are both positive and negative takeaways from Straco’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

The table below shows the important numbers from Straco’s income statement for the second quarters of 2017 and 2016:

Source: Straco 2017 second quarter earnings announcement

Straco performed strongly in the second quarter of 2017, with solid growth in both revenue and profit.

2. The positives

Firstly, total visitors to all of Straco’s attractions increased by 8.3% year-on-year to 1.23 million visitors in the second quarter of 2017. There were more visitors to Shanghai Ocean Aquarium, Lixing Cable Car, and the Singapore Flyer. The Underworld World Xiamen was the odd-one out with lower visitorship.

Secondly, profit attributable to shareholders was up by 23.4% despite revenue growing by only 8.4%. Straco had managed to reduce many of its expenses. For instance, the single largest expense, staff cost, fell by 2.3% in the quarter to S$5.1 million.

Thirdly, Straco continues to generate good operating cash flow. For the reporting quarter, operating cash flow came in at S$16.64 million, up 23.0% from a year ago. Given the low maintenance capex and low working capital required in the business, the cash Straco generates can be distributed freely to its shareholders.

3. The negatives

The Underwater World Xiamen, which is located on the scenic Gulangyu island, reported lower revenue in the second quarter of 2017 due to lower number of visitors during the quarter. This was driven by unfavourable weather conditions and a newly implemented capacity restriction to Gulangyu by the local authorities.

The latter raises uncertainties about the future growth of revenue from the Underwater World Xiamen.

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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. Motley Fool Singapore has a recommendation for Straco.