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Straco Corporation Ltd’s 2018 Second-Quarter Earnings: The Woes Continue

Straco Corporation Ltd (SGX: S85) owns and operates tourism attractions in China and Singapore. In China, the company owns the Shanghai Ocean AquariumUnderwater World Xiamen, and Lintong Lixing Cable Car attractions. Over in Singapore, Straco Corporation has a majority stake in the iconic observation wheel, Singapore Flyer.

Yesterday, the company announced its financial results for the second quarter ended 30 June 2018.

Financial and operational highlights

Revenue for the second quarter tumbled 6.4% year-on-year to S$28.27 million. Straco said that the fall in revenue was mainly due to lower revenue achieved by the Singapore Flyer on lesser visitors.

Straco added that SOA’s revenue fall was on the back of value-added tax on ticket revenue being accounted for in 2018 since the tax waiver on ticket revenue for Shanghai educational bases for the year has not been issued yet. Higher revenue generated by Lixing Cable Car and Underwater World Xiamen during the reporting quarter partially offset the lower revenue mentioned earlier.

Profit attributable to shareholders fell 5.1% to S$10.8 million from a year ago. As a result, diluted earnings per share for the reporting quarter fell to 1.25 Singapore cent from 1.32 cents a year back.

As of 30 June 2018, the balance sheet had S$180.4 million in cash and equivalents, and total debt of S$43.9 million. Straco ended the quarter with a net cash position of S$136.5 million. The reporting quarter’s net cash position is lower than that at the end of 2017, which stood at S$140.5 million.

Cash flow from operations declined by 22%, from S$16.6 million in 2017’s second quarter to S$13 million in the latest quarter. With an increase in capital expenditure from S$0.20 million last year to S$0.70 million this year, Straco’s free cash flow for the second quarter of 2018 came in at S$12.3 million as opposed to S$16.4 million a year back.

In the reporting quarter, overall visitation to Straco’s attractions inched down by 1.2% year-on-year to 1.22 million visitors.

Outlook

Straco gave some insights into the China and Singapore tourism sectors, saying:

“[D]ata from China’s National Tourism Administration (“CNTA”) showed that China’s domestic tourism industry earned 4.57 trillion yuan with 5 billion domestic trips made in 2017, up 15.9% and 12.8% respectively. The country has set the target of earning 5.98 trillion yuan in its tourism industry in 2018.

In Singapore, … Singapore Tourism Board (“STB”) statistics showed that overall visitor arrivals for January to May period increased 6.9% year-on-year to 7.65 million. Tourism receipts are forecasted to be in the range of $27.1 billion to $27.6 billion (up 1-3%) and international visitor arrivals in the range of 17.6 million to 18.1 million (up 1-4%) this year.”

The robust tourism sectors in both the countries should bode well for Straco in the long-term.

The Foolish takeaway

Straco’s woes from the first quarter of 2018 continued into the second quarter. In the previous quarter, revenue declined by 31.7% to S$18.8 million while net profit came down 60.1% to S$3.6 million. Even though the second quarter of 2018 did not see such steep declines compared to the preceding quarter, it still concerns me to see declines in revenue, profitability and free cash flow for the company in the latest quarter.

At the closing price of S$0.725 yesterday, Straco was selling at a trailing price-to-earnings ratio of around 15 and had a dividend yield of 3.4%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Straco Corporation Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Straco Corporation Ltd.