The last update for Straco was the impending revision to the ticket prices for their aquariums. That would have provided a good growth for their cash flow.
This week the full year results was announced.
Current Share Price: SG$0.80
Outstanding number of shares: 855 mil
Market Cap: SG$684 mil
Dividend per share: SG$0.025 (3.1% Dividend Yield)
Full year revenue rose from 93 mil to 127 mil on the back of significant contribution from the Singapore Flyer.
Full year net profit rose from SG$39 mil to SG$51.8 mil. This gives an earnings yield of 7.6% (note this is total net profit but shareholders’ profit is lesser at SG$49 mil)
In terms of free cash flow, Straco generated SG$59.85 mil in 2015. Based on current market cap, the free cash flow yield is 8.75%.
As a full year earnings profile Straco have continue to generate cash flow very well.
Since the acquisition of the Flyer, its capital expenditure have fallen from SG$116 mil to SG$3.8 mil. This is somewhat inline with FY2012 capital expenditure of SG$1.1 mil. This is the period where capital expenditure wasn’t earmarked for the flyer acquisition.
We can see here that the beauty of the business is very little maintenance capex needed for generating a lot of cash flow.
Straco Cash net of Debt:
FY2012: $96 mil
FY2013: $108 mil
FY2014: $19 mil
FY2015: $63 mil
Since cash flow is positive, we are seeing Straco’s cash holding rapidly restored closer to former levels.
If we backed out the $63 mil net cash, the respective earnings yield and free cash flow yield becomes 8.3% and 9.6%.
Rise in Dividend per Share
Straco decided to pay out more dividends, rising the dividend to SG$0.025 from SG$0.02.
This represent 43.66% payout of total earnings.
The above table shows the segmental result for Straco. The GOW represents Giant Observation Wheel (what a freaking name).
The management initially targeted a 10% ROA on their investments. However, they guided that it would probably take a few years to get that performance.
There was so much freaking doubt when they first bought the flyer (which I covered here) because most flyers have been bad business as a whole, with the exception being the London Eye. That in itself have a poor operating problem at the start.
The ROA is 7.7% which is a very good results considering they are just cutting the fats.
I think it reflects more on how badly the flyer was originally managed then how good Straco did.
The net profit margin for the Flyer is pretty good as well. (Take a look at the aquarium’s profit margin, they are ridiculous)
There are likely to be more tweaking and capital expenditure on the Flyer. When Singapore Tourism Board has a view on this, it is likely they would expect some plans for the development of the Flyer, and how Straco would make use of the shops around the flyer.
I got news that Jumbo Seafood will be replacing the Chinese restaurant there and that is the kind of brand name that fits the Flyer because the Flyer currently does not have complementary amusement that they can feed off.
Jumbo Seafood enjoys lower rent primarily because they can still thrive in less prime places (read non-REIT places)
The strategy for Straco could well be having these complementary things near the Flyer so that the visitors go up. The revenue from the tickets probably worth more than the rental income.
When I chance upon a property developer’s presentation on the plans for that area, we could see that area being developed with a certain theme, and that could bode well for the Flyer’s future as well.
Overall this is a great result, despite the challenging tourism climate in Singapore.
Poor Aquarium Results
What was masked by the good performance of the Flyers contribution was that the visitorship of Shanghai Aquarium and UWX have fallen.
This is big to me considering the last time visitors fell was the year after a major Shanghai convention event in FY2011.
We keep hearing about China slow down these few years but the impact have been minimal.
Shanghai aquarium have been in a prime location and thus rather insulated there.
The fall in visitors also happened before the unknown that is Shanghai Disneyland which will open up in mid of this year.
UWX have been rather affected by the number of visitors restriction placed by the authorities.
The cash flow from aquariums is a significant contributor to Straco, more so than the Flyer.
And since Straco have rather high operating leverage, that could work in the opposite direction when visitor-ship drops.
Taking a bird’s eye view of Straco as a business, there are still a lot of merits that I like. This is enhanced further by the execution of the restructuring of the Flyer.
It is always good that you have management that knows how to manage things, and evaluates deals that turned out to be profitable. Raising the dividends appropriately to reward shareholders is also a plus point.
At current prices, the free cash flow yield is attractive, but I wonder if the future growth is intact.
Since the current value is a summation of future cash flow, a lot of our estimation of current intrinsic value is based on future growth of the free cash flow. Here is the unknown there.
I would take a break from Straco. I remained invested but have pared down to evaluate my options. Writing this piece cleared my head. If I see no other options with a better return per unit risk, I would increase my holdings in Straco again.
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