The Motley Fool

3 Potential Ways for Straco Corporation Limited to Grow Its Business

Straco Corporation Limited (SGX: S85) is an operator of tourism attractions in both Singapore and China. The group owns two aquariums in China: Shanghai Ocean Aquarium (SOA) and Underwater World Xiamen (UWX), as well as the Lixing Cable Car located in Xi’An and the rights to develop Chao Yuan Ge, a historical heritage site. In addition, Straco also owns 90% of the Singapore Flyer, a giant observation wheel located in Singapore.

Many investors perceive Straco to be a dividend stock, as the group has paid consistent and even growing dividends over the years. After its high-profile announcement of the purchase of the Singapore Flyer back in August 2014, the group has quietened down, and there have been no major corporate updates since then.

After reading up on the group and studying its business model, plans and speaking with executives at its recent annual general meeting (AGM), I believe there are three potential ways for Straco to grow its business further.

1. Singapore Flyer revamp

Management has spoken about the Singapore Flyer revamp before in prior AGMs, but this hinges on whether the group can obtain the green light from authorities such as the Building and Construction Authority (BCA) and Singapore Tourism Board (STB). Both STB and BCA need to study Straco’s detailed plans for the Flyer 2.0 (i.e. enhanced version of the Flyer) before allowing the group to proceed.

In the meantime, though, investors can look forward to the Time Capsule attraction which is being constructed at the Flyer premises, with the projected operating date being Q4 2019. This should add a secondary revenue stream for the Flyer in addition to the primary revenue it obtains from its shop leases and capsule “flights”.

2. Raising ticket prices for SOA

Straco has kept its ticket prices constant for SOA for many years, as China is going through an economic slowdown at the moment which is crimping consumer’s propensity to spend. With a consistently high volume of visitors to SOA due to its central location, any increase in ticket prices should trickle down immediately to bottom-line. Though there may be an initial pullback in visitor numbers in response to any ticket price increase, this should smoothen out over the months as SOA continues to be a key tourist attraction in Shanghai for both locals and foreigners.

3. Tapping on its cash for acquisitions

A third potential method for Straco to grow its business is to tap on its cash balance for an acquisition. Recall that the group purchased UWX back in September 2007 for S$12.3 million and 90% of the Singapore Flyer for S$140 million, and both assets have subsequently performed very well.

Straco has demonstrated an excellent track record of purchasing quality assets at marked-down prices and then turning the assets around over time. However, the group is also cautious in its approach, and as can be seen from history, does not undertake acquisitions on a regular basis. There have only been two such major acquisitions in the last 12 years. However, I hope that Straco identifies a great opportunity soon, and with its strong balance sheet, it will be ready to swoop in to acquire the asset.

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