The Good And The Bad: What Investors Should Know About Straco Corporation Ltd’s Latest Earnings
Straco Corporation Ltd (SGX: S85) is an owner and operator of tourism attractions in China and Singapore. In China, the company has the Shanghai Ocean Aquarium (SOA), Underwater World Xiamen (UMX), and Lintong Lixing Cable Car attractions under its umbrella. As for Singapore, Straco has a majority stake in the iconic Singapore Flyer, one of the largest observation wheels in the world.
Earlier this month, the company released its 2017 first quarter earnings. There are both positive and negative takeaways from the announcement that investors may want to learn about. Let’s take a look, starting with an overview of the numbers:
1. The overall result
The following’s a table showing some of the important items from Straco’s income statement for the first quarters of 2017 and 2016:
Source: Straco 2017 first quarter earnings release
As you can see, Straco enjoyed revenue as well as profit growth in the reporting quarter.
2. The positives
Firstly, total visitors to all of Straco’s attractions increased by 7.8% from the first quarter of 2016 to 1.07 million. The company’s attractions in China all reported higher visitor numbers.
Secondly, Straco continues to generate good free cash flow. In the first quarter of 2017, free cash flow came in at S$11.0 million, marginally lower than the S$11.4 million seen a year ago.
Given the low maintenance capital expenditure and low working capital required for Straco’s business, the free cash flow generated can be distributed freely to shareholders.
3. The negatives
Firstly, the renminbi weakened against the Singapore dollar during the first quarter of 2017. This phenomenon had negatively impacted Straco’s results.
Secondly, the company’s staff costs is rising at a faster pace as compared to revenue. In the first quarter of 2017, the former grew by 12.6% year-on-year while the latter was up by 4.2%.
In all, it was a strong quarter for Straco given the higher revenue, higher profit, and presence of free cash flow. But, investors should pay close attention to the company’s rising staff costs, especially when it’s a situation that has continued from 2016.