Kevin Scully, executive chairman of NRA Capital.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 ????
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Commentary
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 Singapore Flyer "is operational profitable but probably doesn't enjoy the same margin as Straco's China operations." Photo: CompanyThe 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%. |