The Motley Fool

Investing Lessons from Straco Corporation Ltd’s Singapore Flyer

A method where investors glean information that is not easily found in earnings reports is called Scuttlebutt. The method involves gathering information of listed companies from the sales staff, users of the product, via personal observations, and so on.

I decided to find out how relevant the Singapore Flyer is to tourists by trawling the internet for information. The Flyer is majority-owned by Straco Corporation Ltd (SGX: S85), an owner and operator of tourism attractions in China and Singapore. Using our own experiences as a local, we may feel that the Singapore Flyer is not relevant as an attraction. However, that is far from the truth for tourists. Let’s find out why.

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Rave reviews

I was surprised, as a local, to find that the giant observation wheel was extremely popular among tourists. On TripAdvisor, the Singapore Flyer has amassed 4.5 stars with 54% out of the 16,820 reviews rating the attraction as “Excellent”. A visitor from Brisbane, Australia, stated the following on the website:

“At 165 metres high this is well worth the visit, the view you get during the 30 minute ride is astounding. The capsules are air conditioned and hold approximately 20 passengers, you have unobstructed views in all directions during the trip. There are great photo opportunities and a lot of information provided within the capsule. This is a must do if you ever visit Singapore.”

The Flyer is also ranked eighth out of 909 things to do in Singapore on TripAdvisor.

Spinning over to Facebook, the observation wheel is rated 4.2 stars based on the opinion of 55,729 people. A quick Google search shows the Flyer rated at 4.6 stars with 8,993 reviews. A visitor gave rave reviews of the Singapore attraction:

“It’s pretty awesome. The views are spectacular. It’s like you are sitting in an air-conditioned viewpoint at the top of the world. Kind of like a helicopter, only with no risk and noise 🙂 Best photo opportunities in Singapore. A must visit for tourists. Definitely recommend.”

When the observation wheel was shuttered in early 2018 due to a technical issue, many visitors expressed disappointment, as seen from media reports. One couple wanted to mark a special occasion on board the Flyer, but could not do so due to the shutdown. The Straits Times reported then:

“Semi-retired banker Val Banta, 72, and his wife Edna, 62, a gynaecologist, had flown in from the Philippines on Saturday on a trip to mark their 32nd wedding anniversary. Staring wistfully at the skyline, he said: “We wish we were up there for the extraordinary experience. It is an iconic attraction.””

Earnings bounce 

The anecdotal evidence also showed up in Straco’s earnings. For the whole of 2018, Straco did not produce great results. Revenue fell 8.2% year-on-year largely due to the suspension of rides at the Singapore Flyer, which lasted from 25 January 2018 till 31 March 2018 (Singapore Flyer’s revenue tumbled 22.5% for 2018). Meanwhile, net profit for the year declined by 12.4%. However, a deeper look would have shown that the lower revenue and earnings in 2018 were temporary.

Overall visitation to all attractions declined by 4.4% year-on-year to 4.98 million in 2018. In the first quarter of 2018, overall visitors numbers plunged 24.7% to 0.80 million visitors, which was most likely due to the Flyer stoppage. However, for the rest of the quarters in 2018, overall visitation improved by 1.3% to 4.18 million. The improvement shows that the overall fall in visitor numbers in 2018 should be due to the Flyer shutdown mainly, which has since been resolved.

Pent-up demand from tourists and the relevancy of the Singapore Flyer to tourists ensured its viability. Many months later, it was confirmed that the revenue and net profit decline for 2018 was a one-off.

In the first quarter of 2019, revenue and net profit bounced back nicely. As seen from our earnings coverage, 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” while net profit ballooned 139%.

The Foolish takeaway 

When the Flyer was shuttered in early 2018, many investors were petrified and sold down Straco’s shares; its share price fell around 9% when the Flyer was shut. However, the quick scuttlebutt on the internet would have confirmed that the fears were unwarranted. Tourists love the Flyer, and that can be seen from the rave reviews online. The Singapore Flyer is a vital piece of the Singapore tourism landscape and will continue to be so as long as Straco’s management keeps doing the right things.

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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.