Straco Corporation

[weijian]

Straco recently did a 3Q2021 update of its results and the 3rd quarter is the most important quarter of each year. The results are pretty disappointing with a 30% reduction in operating/net profit compared to FY20, due to the various closures and tightening of measures.

We can expect that these actions will stay around for some time as China continues to adopt zero Covid. One may also suspect due to their effective zero covid policy, the local chinese population will continue to be immunologically naive in coming years (2022 and beyond). After been ravaged by Covid-19 delta cases in 2021, the rest of the world, whom adopted a "living with covid" strategy may actually much more equipped and hence in a better situation than China in 2022 and beyond.

There will probably be more bad news for Straco in time to come.

In the meanwhile, Straco's current market cap is ~400-420mil. Chairman and family owns 55% and anything it doesn't own costs ~180mil. It currently has net cash of 173mil and that is pretty close to been sufficient to doing a MBO (Management Buy Out) at current prices. Putting price aside, it reminds to be seen whether it can buy out its SOE shareholder, China Poly who owns 22% (or is it wise to do so?) Or both the founder family and China Poly can combine to delist the company?

3Q2021 update: https://links.sgx.com/FileOpen/Straco-Bu...eID=691314

[weijian]

Straco did a 3Q23 business update and been the most important quarter for Chinese tourism, let's take a look at its current numbers compared to pre-covid:

Revenue/EBITDA/PATMI:
2023: 35,463k / 23,694k / 16,342k
2019: 43,103k / 28,566k / 18,834k
2018: 48,489k / 31,832k / 21,417k
2017: 46,111k / 31,550k / 21,348k
2016: 47,630k / 33,456k / 22,743k

3Q23 update:
https://links.sgx.com/FileOpen/Straco-Bu...eID=779061

- While tourism related numbers everywhere, especially hotel's REVPAR have exceeded precovid numbers, but Straco's revenue/PATMI are still below pre-covid. It probably had a decent quarter considering the fact that more folks are traveling domestically than abroad?

With the share price doing at even below covid levels, is it worth another look especially that latest figures show that earnings are "just" 15-20% below precovid 2019?

[donmihaihai]

Hi Weijian

In the past, SOA was under fixed lease till 2037 but in 2022 AR, SOA rental is under a fixed % of revenue. Do you know what happened to the lease? No longer follow Straco since covid.

I have not read company with hotel operation in China yet, but I suspect, with China economy/tourism operating at maybe 2 or 3 gears below the past so we will not be going to see the same level of profitability in hotel or SOA going forward. That extra kick in profitability come from operating at high gear, which obviously not going to happen any time soon. So, it might be wise to lower expectations.

[weijian]

Hi donmihaihai,

I have pulled back up to AR14 to check out SOA's lease statement and it is as below:

Shanghai Ocean Aquarium Co Ltd entered into an agreement for a land use right for a period of 40 years from 18 November 1997 to 17 November 2037. Rental is fixed at a percentage of its total revenue and is payable annually.

As far back in AGM for FY20, Mgt had replied that the lease was till 2037. As such, I don't think anything has changed in terms of a lease till 2037 and rental been dependent on performance.

Under the lease agreement, Shanghai Ocean Aquarium, as the lessee, can opt for lease renewal before the expiry of the current lease in November 2037. The duration of the new lease, including rent, will be subject to mutual agreement between the lessor and lessee.

AGM QnA for FY20: https://links.sgx.com/FileOpen/Straco-AG...eID=662546

[donmihaihai]

Thanks Weijian. I am getting complacent.

[weijian]

Straco recently released its FY23 results, and a huge rebound is seen. Dividend per share doubled to 2cents from the last 3 FY's 1 cent/share.

Is there further runway in the recovery?
- The company welcomed a total of 2.06+1.3 = 3.36mil visitors. That is running at ~73% capacity of FY19.
- For context, China's 2023 tourism revenue for 2023 is 91% of 2019 and Spore's international visitors' arrivals is ~71 per cent of 2019. So Straco is mostly underperforming based on these "recovery" statistics.
- Are their attractions no longer as attractive comparatively now? Or there is further runaway to recover in FY24 and outperform the tourism industry's averages?

FY23:
Overall visitation to all our attractions totalled 2.06 million visitors for 2H2023, 216% higher than the corresponding period of 0.65 million visitors in 2H2022.  For the half-year under review, the Group recorded approximately 1.3 million visitors to all its attractions, significantly higher than the 0.31 million visitors in 1H2022
FY19:
Overall visitor arrivals to all the Group’s attractions was 4.60 million, 7.5% lower than FY2018.

Gov's tailwind?
- The recent Taylor Swift's big hoo-ha has demonstrated that it is great to have the Gov spend to create a tailwind for you, in a win-win for all stakeholders.

Shanghai has also in December 2023 launched the “Visit Shanghai” campaign to boost inbound tourism, with the goal of making the city a world-famous tourist destination and the first stop in China for inbound travellers. The Shanghai Administration of Culture and Tourism reported that in 2024, Shanghai will continuously optimise its inbound tourism environment and attract more international tourists through various grand festive events such as the Shanghai Tourism Festival and the China Shanghai International Arts Festival. With the aim of prolonging overnight stay of inbound tourists and boosting their consumption, the city will launch multi-layered and differentiated tourist itineraries and develop a number of metropolitan tourist attractions, while also raising inbound tourism service experience by further easing the convenience of payment and customs clearance of inbound tourists.

Singapore’s economy grew by 1.1% in 2023, as reported by the Ministry of Trade and Industry (“MTI”). On the tourism sector, the Singapore Tourism Board (“STB”) had reported that Singapore’s tourism sector recovered strongly with 13.6 million international visitor arrivals in 2023, and estimated tourism receipts of $24.5 to $26.0 billion. STB expects continual recovery of the tourism sector in 2024 on improved international flight connectivity and increased capacity, as well as the implementation of the mutual 30-day visa-free travel between China and Singapore.

Straco FY23 results:
https://links.sgx.com/FileOpen/Straco2H2...eID=790463

[weijian]

50mil is actually not a lot of money to buy a new attraction, or at least one that can move the needle. Afterall, the Spore Flyer was purchased at ~140mil about 10years ago and that was supposed to be a distressed purchase.

MINUTES OF THE ANNUAL GENERAL MEETING

Question: How much is the Singapore Flyer Capex and the China Capex? How much has been set aside for merger and acquisitions?

Answer
Presently the Company has Net Cash of S$160 million, probably about S$50 million can be earmarked for the Singapore Flyer Capex and between S$30 to S$50 million for the China side.

The remaining cash amount of approximately S$50 million is available for mergers and acquisitions. The Company prefers to remain debt free to avoid finance costs.

There are projects presented to the Company for consideration. However, the Company must assess these projects carefully, based on operating costs, and profitability, the two most important criteria in reaching a decision on whether to embark on a new project. Management is open to collaboration if the project is assessed to be viable and profitable, and
need not be wholly-owned.

https://links.sgx.com/FileOpen/Straco%20...eID=804133