Straco Corporation Ltd (SGX: S85) (“Straco”) is an operator of tourism assets in China and Singapore. Straco owns Shanghai Ocean Aquarium (“SOA”), Underwater World Xiamen (“UWX”) and Lintong Cable Car in China. In Singapore, the group owns 90% of the iconic Singapore Flyer (“Flyer”).
Yesterday, the group released their fourth-quarter and full-year 2018 earnings. Here are eight highlights to take note of from their earnings and media release:-
1) For full-year 2018, revenue declined by 8.2% year on year from S$128.4 million to S$117.9 million. The decline was mainly due to the suspension of rides at the Flyer after a technical issue occurred, and the stoppage lasted from 25 January till 31 March 2018.
2) Sales and marketing expenses jumped 40% to S$2.2 million, while loss on disposal of plant and equipment rose to nearly S$1 million. These were offset by a decline of 25% in depreciation and amortisation expenses. As a result of the above, operating profit for the year declined by 11.2% year on year from S$70.5 million to S$63.7 million. Operating margin dipped slightly from 55.8% a year ago to 54.0%.
3) Net profit attributable to shareholders decreased by 12.4% year on year from S$47.7 million to S$41.8 million.
4) Straco’s balance sheet remained solid with S$201.7 million of cash at year-end, against S$38 million of debt. Net cash stood at S$163.7 million, which represented S$0.19 per share.
5) Despite lower profitability, operating cash flow remained healthy at S$51.4 million for the year, against S$66.1 million a year ago. Capital expenditure remained low at S$4.2 million, so the group generated free cash flow of S$47.2 million.
6) Earnings per share dipped to S$0.0485, down from S$0.0553 a year ago. Though profits were down, the company surprised investors by declaring a special dividend of S$0.01 per share in addition to the final dividend of S$0.025 per share, taking total dividends declared for the year to S$0.035 Singapore cents per share. At the last done price of S$0.76 as of 28 February 2019, Straco Corp had a trailing price-to-earnings ratio of 15.7 and a trailing dividend yield of 4.6%.
7) Overall visitation to all attractions decreased by 3.8% year on year to 946,000 visitors for the fourth quarter.
8) Wu Hsioh Kwang, Straco’s executive chairman, sounded a note of optimism despite the weaker results:-
“Overall performance for this year was impacted mainly by the two months of ride suspension at Singapore Flyer during the first quarter. The aquarium businesses also registered marginal decrease in revenue and net profit; while Underwater World Xiamen registered marginal growth in revenue and net profit, our Shanghai Ocean Aquarium was affected by unfavourable weather this year and tightened traffic control in October/November during the Import Expo held in Shanghai. Nevertheless, the outlook for China domestic tourism is expected to remain positive.”
The Foolish Bottom Line
Straco has reported a decent set of earnings in spite of lower revenues at both aquariums and also the two-month shutdown of the Flyer. AlThough visitor numbers dipped marginally which resulted in lower revenue, effective cost control meant that profit remained flat instead of declining. The group continues to generate large amounts of free cash flow despite lower profitability reported this year. As cash continues to build up on its balance sheet even after paying off S$12 million in loans per year, Straco has been looking for a way to utilise this cash. The declaration of the special dividend was a pleasant surprise for shareholders and demonstrates management’s willingness to reward shareholders.
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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.