In Straco Corporation's 2014 financial results, it reported FY2014 revenue of S$92.3mn, up 26.7% with net profit higher by 10.9% to S$37.7mn.
The Q4 numbers showed a less rosy picture with revenue higher by 32.8% to S$19.4mn and a net profit decline by 21.4% to S$4.4mn.
That poorer performance reflected its recent acquisition of the Singapore Flyer.
So did it buy a lemon, is Straco Corporation still a BUY ????
I have liked Straco as a captive China domestic tourism play. This business would be deemed to be defensive notwithstanding what happens to the global economy.
The acquisition of the Singapore Flyer for S$140mn with a remaining lease of 21 years and an option of 15 years was a question mark given the historic performance of the asset.
Only time will tell whether Straco has bought a lemon or another strategic regional tourism asset. But given Singapore's small domestic base - the Singapore Flyer is a proxy of Singapore tourism numbers which is international tourism.
Notwithstanding the Q4 segmented loss from the GOW (Singapore Flyer) reported by Straco - I believe this includes one off items as mentioned in the results of S$2mn, I believe the GOW is operational profitable but probably doesnt enjoy the same margin as Straco's China operations.
|I have always valued Straco based on discounted cashflow. Given the rise in S$ interest rates, I have raised my discount rate and also adjusted for the net cash balances given the acquisition of GOW, nothwithstanding this, the stock is still UNDERVALUED.
I am therefore maintaining my BUY recommendation - it remains as one of My Stock Picks. I am however moving it from my Yield Portfolio to my Growth portfolio because its share price has more than tripled since my recommendation in 2012 at S$0.25 which has pushed down the dividend yield to 2.6%.