Kevin Scully (left) is executive chairman of NRA Capital. This article was recently published on www.nracapital.com and is reproduced with permission.Straco Corporation reported its Q1-2014 results which showed sustained growth in revenue which expanded by 30% but net profit declined by 1% caused mainly by the absence from gains of a land sale and exchange losses compared to exchange gains during that period.
The key highlights of the results are in the table below:
Commentary: The group drove its top line through a 22% increase in visitors to Shanghai Ocean Aquarium and Underwater World Xiamen to 608,000.
The Group had sold a piece of land in Q1-2013 for a gain of S$0.64mn and had an exchange gain of S$0.61 in Q12013 compared to no land sale gain in Q1-2014 and an exchange loss of S$1.01mn in Q1-2014.
I have included an adjusted net profit figure only removing the land sale gains which show a profit rise of 12%.
However, if an adjustment was also made for exchange gains, the notional net profit rise would be 42% for Q1-2014.
Q1 is usually the weakest quarter for Straco Corporation in terms of revenue with Q3 being the peak.
I expect some slowdown in revenue growth to more sustainable levels in the later part of 2014.
Nevertheless, Straco is comfortably on track to deliver revenue growth of 15-20% on improved margins.
Straco generated S$6.6 million in operating cashflow in 1Q2014, up from S$5.0 million a year earlier. Above: Straco's Shanghai Ocean Aquarium. Photo: http://www.shanghai.gov.cn/The stock remains an excellent play on the domestic demand/tourism in China which does not seem to be affected by the slowing Chinese economy from weaker external demand.
The Group's strong balance sheet with gross cash of more than S$100mn can therefore continue to pay attractive dividends, reinforcing the valuation method of a divdend discount.
The stock remains attractive despite recent gains - No change in my price target (see My Stock Picks Yield section).
Recent story: Kevin Scully: "STRACO a good defensive domestic consumption play in China"
