8 Key Takeaways From Straco Corporation Ltd’s Latest Earnings

Straco Corporation Ltd (SGX: S85) (“Straco”) is an operator of tourism assets in China and Singapore. The company owns the Shanghai Ocean Aquarium (“SOA“) and Underwater World Xiamen (“UWX“) assets in China, as well as Lintong Cable Car. In Singapore, Straco owns 90% of the Singapore Flyer (“Flyer“).

Yesterday, the company released its 2018 third-quarter results. Here are eight key points to note from their latest earnings report:

1. Revenue increased by 5.2% year-on-year to S$48.5 million, up from S$46.1 million a year ago. Higher revenues were recorded by Straco’s three assets in China, namely SOA, UWX and Lintong Cable Car. The increase in sales was slightly offset by lower revenues from the Flyer.

2. Operating profit increased at a slower rate of 0.9% to S$31.5 million, mainly due to higher repairs and maintenance expense relating to the Flyer breakdown earlier this year, overall higher maintenance expenses for their China assets, as well as higher staff costs.

3. Net profit after tax was relatively flat, increasing just 0.3% to S$21.4 million due to slightly higher tax expenses of S$8.8 million which were up 2% year on year.

4. Straco’s balance sheet continued to strengthen with cash balances increasing to S$203.1 million, up from S$190.4 million as at the end of 2017. Total debt amounted to S$41 million as at the end of the current quarter. As a result, the company’s net cash stood at S$162.1 million this year, as compared to S$140.5 million as at end-2017.

5. Overall visitor numbers to all attractions increased by 5.5% year on year to around 2 million visitors. The increase contributed to higher revenues across all attractions except for Singapore’s Flyer.

6. Operating cash flow was strong for the quarter at S$32.5 million, slightly lower than the S$33.1 million generated during the same period last year. Free cash flow came in at S$31.9 million for the quarter, against S$32.7 million last year. After netting off dividends paid to non-controlling interests and repayment of S$3 million of borrowings, Straco added S$28.5 million in cash to its balance sheet.

7. Mr. Wu Hsioh Kwang, Straco Executive Chairman, had this to say on the results:-

“We are pleased with the overall performance for the 3Q [third-quarter] as all our China operations reported positive growth in revenue and earnings for the quarter under review. Singapore Flyer also reported slightly higher earnings for the quarter.”

8. Prospects for China tourism are positive. China’s Ministry for Culture and Tourism reported that the domestic travel market has increased to 2.8 billion tourists in 2018’s first half, up 11.4% year-on-year. For Singapore’s tourism sector, visitor arrivals increased by 7.7% year-on-year to 9.2 million for the first half of this year. Both these numbers suggest that there are positive tailwinds for Straco’s assets to generate higher revenues and cash flow in future years.

The Foolish Bottom Line

Straco reported a respectable set of earnings in its latest quarter.

Free cash flow generation remains consistent and strong. With their tourism attractions seeing a rise in visitor numbers year-on-year, this bodes well for the overall business moving forward. At yesterday’s closing price of S$0.69, Straco is currently trading at a trailing price-earnings ratio of 14.2 and a trailing dividend yield 3.6%.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in Straco Corporation.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has a recommendation for Straco Corporation. The Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.