12 August 2014

Straco Quarterly Report Summary - August 2014 (Revenue Up 24%, Net Profit Up 4.8%)

Performance Review

1H14 revenue up 24% to S$34 million, with 2Q14 visitors increased 22.4% to 840,000 persons for combined visitation to Shanghai Ocean Aquarium "SOA" and Underwater World Xiamen "UMX".

Administrative expenses for 2Q2014 increased $1.89 million, or 142.4% from 2Q2013, mainly due to the foreign exchange loss of $396,000 recorded in the current period as the Chinese Yuan (RMB) weakened against the Singapore dollar (SGD) during the period; as opposed to an exchange gain of $1.15 million recorded in 2Q2013 when the RMB strengthened against SGD at that time. Taking away the foreign exchange differences in both periods, profit before tax for the current quarter would have been $13.15 million, an increase of 29.8% compared to 2Q2013.

The Group generated net cash from operating activities amounting to $10.14 million in 2Q2014. During the quarter, the Company paid out special and final dividend amounting to $16.95 million for the financial year ended 31 December 2013, and received $0.43 million from the exercises of share options. As at 30 June 2014, the Group’s cash and cash equivalent balance amounted to $99.97 million.

1H 2014 EPS: 1.60 cents
NAV: 18.33 cents
Estimated ROE: 15% - 25%
Estimated PE: > 20 X

Company Comment On the Outlook

The National Bureau of Statistics of China reported that the Chinese economy grew 7.5% in the second quarter of 2014 from a year earlier, boosted by government’s targeted stimulus measures of spending and credit-easing.

For the first half of 2014, the Chinese economy was stable with GDP growth of 7.4% from the same period last year, with domestic demand playing a bigger role in driving growth, contributing to 52.4% of GDP in the first half.

My Notes

It seems that Straco did a good job by having total number of visitors increased by more than 20% annually. While I believe that the CAPEX requirement is low at this moment for the company, my concern is that the increase of revenue is slower than the increase of total visitors (it means that average selling price per person was dropping). I would need to have more detailed information from the company before any decision is made.

The estimated PE is more than 20 X, unless the company can maintain EPS growth rate of more than 20% every year, else I doubt this is considered cheap at this level.

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