The last report on Straco was the full year results, with a maiden contribution from the Singapore Flyer. Back then the share price still hovers around $0.75 and with a projection of $12 mil full year contribution in GOW (Singapore Flyer) profits, the PE is around 11 times on SG$ 54 mil forward projected earnings.
Current Price: SG$ 0.93
Outstanding Shares: 869 mil
Market Cap: $808 mil
In CIMB’s 2015 Mar report, it was mentioned that Straco usually raise ticket prices every 2 to 3 years and they estimate raising the ticket prices by 15%.
A check on the price announcement on SOA and UWX shows that the price changes seem to be official.
- UWX Price Change Announcement. Price changes will take place after 1 Nov 2015
- SOA Price Change Announcement. Price changes will take place after 1 Nov 2015
Since the price changes is so near the end of the year, full year contribution will most likely felt in FY 2016.
In the past raising ticket prices have not shown to decrease turnover volume. Essentially, what matters more to profits seems to be tourism growth, special events, competition versus other tourism establishment.
The major ‘competition’ for the more heavily weighted SOA will be Disney Shanghai which will open this year. For them to raise prices, Straco seem to be reinforcing what they reiterated that Disney is more of a complement then competition.
Since majority of the costs for Straco are fixed and capital expenditure is manageable, raising ticket prices will not add much additional costs, and likely contribute to profits.
Considering the lowest increase in SOA to be 19% and that most of the price rises are more than 20% with the exception of the Family Card, we can estimate a 20% growth in Aquarium segment’s profit before tax.
FY2014 Aquarium revenue is $84.8 mil. Assuming no rise or fall in visitors, a 20% flow to profit will come up to $17 mil.
The next permutation is the contribution from the flyer. Assuming that Straco is looking at a 10 year payback of their $140 mil investment, we should be looking at a baseline $14 mil profit contribution. It should be noted that there are much termination of rentals at the Flyer, so we are looking at lower FY2015 contribution, certainly not these $12 to 14 mil projections.
The going baseline profit in the future is likely to be $39 +$17 + $12 = $68 mil.
The PE in this case is 12 times. Its interesting with the price run up, the PE still falls within the same band.