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Straco’s Latest Earnings: Cash Piling Up

Straco Corporation Limited (SGX: S85) is an operator of tourism assets located in both Singapore and China. The group’s key assets are two aquariums located in Shanghai and Xiamen, a cable car service in Xi’an as well as a 90% interest in the Singapore Flyer, a giant observation wheel in Singapore. The group released its first-quarter 2019 (Q1 2019) earnings on Tuesday, and continued to show steady results with a mix of good and bad news.

Here are some highlights from the earnings, along with a look at Straco’s prospects.

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1. Revenue rose 30.8% year-on-year to S$24.6 million, and the large increase was mainly due to more than two months of operational downtime for the Singapore Flyer in Q1 2018.

2. Operating profit rose 94.7% year-on-year to S$12.3 million due to a high layer of fixed cost within Straco’s business, such that an increase in revenue would flow through to the bottom line. However, staff costs are a concern as they rose 7.4% year-on-year, possibly due to the payment of higher bonuses as well as recruitment of more staff.

3. Net profit attributable to shareholders increased by 139.3% year-on-year to S$8.5 million.

4. Straco continued to maintain a conservative balance sheet with S$209.8 million in cash (a new record high) with S$34.9 million of gross debt, for a net cash balance of S$174.9 million. The group continues to pay down S$3 million of debt per quarter. Net cash per share amounts to around S$0.20.

5. Operating cash flow was strong at S$10 million, and free cash flow generated amounted to S$9 million, significantly higher than last year’s free cash flow of S$2.9 million.

6. The payment of the 2.5 Singapore cents final dividend and 1 Singapore cent special dividend should drain around S$30 million of Straco’s cash reserves, but if the group is able to perform in line with 2017 (the last full year of contribution from all assets operating normally), then it would be able to generate around S$60 million of free cash flow. This more than covers the dividend to be paid out.

7. One negative was that both aquariums reported lower revenues along with lower visitor numbers, possibly due to the slowdown in China’s economy.

Straco continues to report solid results, despite lower revenues for both its key aquarium assets in China. The cash continues to accumulate on its balance sheet, and would stand the company in good stead should they need the cash for an acquisition.

Planned capital expenditures are coming up for both Chao Yuan Ge (for which Straco owns development rights to display relics unearthed from the site in Lishan mountain) and also the Time Capsule attraction at the Singapore Flyer, as mentioned in my Annual General Meeting note. The cash should also come in handy for these planned expenditures, and investors can look forward to better contributions from the Singapore Flyer come 2020.

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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 recommended shares of Straco Corporation Limited. Motley Fool Singapore contributor Royston Yang owns shares in Straco Corporation Limited.