Straco nearly doubles quarterly profits | Investment Moats Skip to Content

Straco nearly doubles quarterly profits

Straco Corp announces their Q2 2012 profits. You can view the results [here].

It would seem that since IPO in early 2003 they have been profitable every year. The great thing about Straco is that they do not need much maintenance capital expenditure. And if they need, they are funded by interest income from their huge cash holdings.

Recently, they started buying back shares. This is also a form of rewarding shareholders, but if they are trading higher then net asset value I wonder if it is really a good way of rewarding us.

They are earning roughly 13% ROE. If we take out the cash, the ROE is likely to be much higher. Yet they are also not increasing their dividend payout.

Cash sitting on the balance sheet is an opportunity fund to be deployed,  but it would seem the management takes their time. No idea what they intend to do with it. Perhaps purchasing 2 more theme tourist attraction within their core competency is a good idea.

This business looks to be humming along just nicely.

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Musicwhiz

Saturday 11th of August 2012

Numbers certainly look good, but is there a reason not to increase the dividend PO ratio when cash keeps piling up? Are they saving it for M&A or some other reason?

Also, noted that this Company's fortunes rely on tourism within China - so if there is a slowdown in domestic consumption in China do you see Straco getting adversely affected?

Thanks!

Drizzt

Sunday 12th of August 2012

Hi Musicwhiz, they have already have the experience in 2002 and 2003, but i believe it is hard to say. This is not a direct consumption play so may not be adversely affected.

The management tends not to like to pay out dividends. They have spent 2003-2008 paying of a 50% net debt and have added Xiamen. I believe they will add a few more assets on their own terms.

Sitting on so much cash may not be very efficient

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