As I had highlighted on 22/2/2015 ( see my post below) Straco may face short term share price weakness because of fall in 4Q result but taking into consideration of one-off expenses and the fact that Straco able to generating cash flow of $37 million in FY2014 speak volume.
Straco at that time was sold down to as low as 72 cts. Since then it was traded to as high as 96 cts and closed at 95 cts. If we will to bargain hunt Straco at 74 cts and below, in less than 1.5 months the gain will be about 28%. I strongly believe Straco is truely a 'GEM' and Straco is my top holding in my portfolio.
Posted on 22 Feb 2015
Straco 4Q revenue was $19.42 million, an 32.8% increase compared to the revenue of $14.63 million for 4Q2013 but 4Q2014 profit was $4.62 compared to the profit of $5.87, an decrease of 21.3%. Taking into consideration of one-off expenses of increased $6.02 million, Straco 4Q2014 profit should increased over 4Q2013 profit. The one-off expenses was attributable to the expenses incurred by SLPL as it took over the operation of Singapore Flyer from 28th November 2014.
The other positive factor is Straco operating cash flow of $37 million generated in FY2014.
Straco may face short term share price weakness because of fall in 4Q profit but taking into consideration of one-off expenses and the fact that Straco able to generating cash flow of $37 million in FY2014 speak volume. As the group took over the operation of the Singapore Flyer from 28th November 2014, the performance of the Singapore Flyer will only unfold in 1Q2015. The group has yet to review its plan for the Singapore flyer.
Straco's net profit in 2014 was about SGD38 million. It will rise to SGD50 m, according to CIMB's forecast.
SGD50 m is about 6 cents a share. Consider that strongly recurrent businesses such as Sheng Siong and Super Group trade at 22-25X -- let's take that ratio and apply it to Straco. We get 25x6 = $1.50 as the share price. Possible to attain in the near term?
Sure, Sheng Siong & Super are not in the same industry as Straco but.... they have strongly recurring income and a consumer base. The 1 key difference is that Sheng Siong/ Super are not enjoying the high growth rates that Straco is. Thus, one could make the case that Straco deserves to trade at an even higher PE multiple !! Perhaps as high as 30X!
Of course, in 2016, further growth in profit (to SGD57m, according to CIMB) will lift Straco's EPS and hence its share price.