note: At Straco's 3 attractions in China, restrictions on daily capacity were imposed starting with 30% of the usual capacity, followed by 50% and 75%. Currently the attractions are allowed to operate up to 75% of daily capacity. In Singapore, the Flyer is subject to a cap of 50% of usual capacity allowed in each capsule.



Excerpts from RHB report (unrated)


Analyst: Jarick Seet

Investment Merits
• Proxy to ride on the rebound of domestic tourism in China;
• Net cash balance sheet, with decent dividends;
• Strong growth in FY21-22F.

ShanghaiAquarium3.14Shanghai Ocean Aquarium is the key operating asset of Straco Corp. Photo: www.shanghaifocus.com

Company Profile
Straco was listed on the Mainboard of the Singapore Exchange on 20 Feb 2004. Since then, the group has become one of the first few foreign companies which has built up a significant presence and influence in the tourism industry in China. It showcases high-quality tourism-related projects - incorporating entertainment, education and culture to create a unique experience for visitors and audiences. These projects include giant observation wheels, large-scale public aquariums, cable-car facilities, and the protection and redevelopment of historical sites.

Highlights
Proxy to the rebound in China's domestic tourism. Straco owns four tourism assets in China: the Shanghai Ocean Aquarium, Underwater World Xiamen, Lintong Lixing Cable-Car, and the development rights to Chao Yuan Ge.

Stock price 

55.5 cents

52-week range

44-60.5 cents

Market cap

S$475 m

PE (ttm)

--

Dividend yield 

1.8%

P/B

1.76

Shares outstanding

855 m

We believe that, with the restrictions on global tourism, there should be a surge in demand benefiting domestic tourism in China.

Our channel checks indicate that this trend is still in effect.

As a result, we believe Straco will be in a prime position to benefit from this, especially since its FY20 performance was badly hit by COVID-19.

Lockdowns imposed in China also dragged down its revenue. Because of this, the group's FY21 eamings should undergo a strong rebound - and this may be evident in its upcoming 1021 and 2021 results.

Net cash balance sheet, attractive dividend yields. With a strong balance sheet and SGD112m in net cash, management has been rewarding shareholders with stable and sustainable dividends over the past years.

It has even been willing to pay more dividends if profitability increases.

Straco's dividend yields have always been healthy, at 3.5-5% over the last few years, and we expect management to reward shareholders with better dividends if eamings rebound in FY21F.

Rebound to strong profitability in FY21F. While the surge in domestic tourism in China should benefit Straco, the easing of restrictions on international travel (post rollout of COVID-19 vaccination drives) - especially in 2H21 - should also significantly boost its profitability. We expect this trend to drive a strong rebound in its net profit in FY21-22F.

Company Report Card
Latest results. Both PATMI and revenue sank in FY20, mainly due to COVID-19 and lockdowns in different countries - which impacted tourism and Straco's performance.

Balance sheet/cash flow. As at end-FY20, and despite such a bad year, Straco still remained in a net cash position despite generating SGD22m of negative cash flow.

However, we expect its net cash position to keep improving, as it continues to generate positive cash flow.

ROE. The group's ROE has been steady over the last few years except for FY20, which was an outlier.

We expect ROE to improve from FY21 onwards. Dividend. The company continues to reward shareholders with attractive and sustainable dividends, representing a yield of 4.7%.

wuhsiokwang ntu10.16Photo: NTU

Management. Wu Hsioh Kwang, the group's founder, has been instrumental in driving its growth since its inception. Wu was appointed as Executive Chairman in Mar 2003, to lead the Group in its strategic vision and overall management. Wu provides valuable business insight and guidance to the board of directors, in developing growth strategies for the group's businesses. Amos Ng Chiau Meng joined Straco in Sep 2000. He is responsible for the finance & accounting, human resources, and administration divisions, as well as oversees the financial reporting and statutory compliance of the group.

Investment Case
Undervalued proxy to tourism recovery.
The stock is trading at the bottom area of its 5-year trading range.

As such, we believe that a strong rebound lies ahead, and the stock will likely undergo a re-rating if it continues to record solid numbers, due to the rebound in domestic tourism in China.

As international tourism also recovers, the company should also benefit from this uptrend.

 


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