 Singapore Flyer: The loan that Straco took to buy it in 2014 has been fully repaid.• The iconic Singapore Flyer is a work in progress. You read that right. It's not a passive investment sitting at the edge of Marina Bay. The owner, Straco Corporation, is actively working on transforming it into a greater asset.• That was what two key insiders let on in a radio interview this week. • Below we run excerpts (edited for brevity) of the session fronted by Straco's CFO, Amos Ng, and Senior Vice President (Corporate Development & Risk Management) Sean Wu. • Post-pandemic, Straco (market cap: ~$400 million) looks to be a turnaround story after its 3Q2023 net profit came in at S$16.3 million. It ended that quarter with net cash of $165.92 million, up from S$143 million as at end-2022. |
| Q: How would you describe your value proposition and business model? |
Sean: To put it succinctly, I would say that our value proposition is the offering of a memorable attraction experience made possible by thoughtful design, curated content, and interactive technology.
In terms of our business model, our main source of revenue would be our ticket sales, which is supplemented by F&B and retail income. In this business, the upfront capex and ongoing running costs are high.
So you really need to ensure a quality product that commands a minimum ticket price and you also need to have a critical mass of tourists with the purchasing power to make it viable in the long run. Location is really important to us and you'll notice that our assets are all located in first-tier cities in China and Singapore.
| Q: In terms of business model, can I say that it is more of a company that works on the ticketing to retail customers? |
Sean: Definitely. And for the most part, we will be focusing on the free individual travelers who pay the full ticket price rather than tour groups.
| Q: We talked about the Singapore Flyer. Your Shanghai Ocean Aquarium and Underwater World Xiamen, they are all located in China. Why is this the case? And to what extent can that be attributed to the roots of the firm? |
Amos: Though a Singapore-based company, the group started out in China, seizing the opportunity following the opening up of China in the 80s. Some of your listeners may not know that initially there was a Temasek linked company that was a founder-shareholder of the group, but they've divested its shareholding prior to listing.
Shanghai Ocean Aquarium is located across The Bund and next to the Oriental Pearl TV Tower. 95% of the aquarium's visitors are China-based.
The group's first success was its flagship, the Shanghai Ocean Aquarium, next to the Oriental Pearl TV Tower. Shortly after the aquarium's soft launch in 2002, we were faced with SARS and our team was involved in implementing all the precautionary measures and chief among them were the thermal scanners at the entrance.
Fortunately, SARS came and went within a year. In year 2020, the group faced the challenging COVID-19 which brought everything to a standstill. But having the earlier SARS experience, despite the protracted resurgence and extended periods of lockdown, I think we weathered the storm well, due to our financial discipline, strong balance sheet and dedicated workforce.
| Q: What is the scale of Straco Corporation's operations right now, how many geographical markets are you guys in in total, which is the most important market financially and the role of Singapore in this regard? |
Sean: In Singapore, we have the Singapore Flyer and in China we have three attractions namely 2 aquariums in Shanghai and Xiamen respectively and we also have a cable car project in Xi'an near the site of the Terracotta Warriors.
| "I think if we are able to fully realize our aspirations for the Flyer in the form of asset enhancements, I believe it will definitely take us to the next level of market visibility and growth." -- Sean Wu |
Financially, China still holds the lion's share of our revenue at around 2/3, but we believe that the Singapore Flyer has huge potential to be a vibrant new precinct for our local tourism industry.
I think if we are able to fully realize our aspirations for the Flyer in the form of asset enhancements, I believe it will definitely take us to the next level of market visibility and growth.
| Q: You said that there is tremendous growth potential for the Singapore Flyer, especially with asset enhancements. Tell us a little bit more about that. |
Sean: We bid for the Flyer because we we saw this potential to redevelop it and I think within two years of taking over, we had already gone into the deep end of conceptualizing the next stage of development. We've already engaged an award-winning architect to do the stage two design of our terminal building, which is the building just under the Flyer itself.
| "Allow me to just clear one misconception of the investing public about our acquisition of Singapore Flyer. Many people thought that we were actually buying a lemon or we were doing national duty, but far from it. I mean, we saw the potential of this iconic attraction." -- Amos Ng |
Of course in terms of the theming and the kind of activities that will be included in the future, we also done done a big revamp of that and we are currently in talks with the authorities to see whether this would be viable and and see how how they can meet us somewhere in terms of the support that they can give us.
Amos: Allow me to just clear one misconception of the investing public about our acquisition of Singapore Flyer. Many people thought that we were actually buying a lemon or we were doing national duty, but far from it.
I mean, we saw the potential of this iconic attraction and fast forward, I'm pleased to say that we have repaid the bank loan that we took to acquire the Singapore Flyer and we we will probably realize the full potential going forward.
| Q: Let's take a look at the financials. Straco reported $16.3 million net profit for the third quarter of FY2023, and the numbers came after the firm swung into the black in H12023 on the back of China's reopening and higher Singapore Flyer revenue. How would you assess your financial performance so far? Has the pace of recovery in China been to your expectations? |
Amos: Allow me to put things in perspective. Over the three years of COVID pandemic from 2020 to 2022, the group made a cumulative loss of just $215,000.
And during these three years, we've also generated net cash, net operating cash flow, of $17.77 million. So I must say that we have weathered this storm pretty well and showed the robustness of our business model.
You asked about the outlook for 2024 -- I must say that the our local teams are still quite optimistic about 2024. I mean, the local management teams of all our subsidiaries. And they have actually put up a growth budget, much to the delight of our board.
» There's a lot more from the radio interview which you can listen here.
