Straco

Straco builds and operate tourist attractions.  They run two aquariums (Shanghai and Xiamen) and the Singapore Flyer. 

Successful tourist attractions are immensely cash generative when things go well.  In 2014, Straco bought the Singapore Flyer from receivership, and turned it around within two years. 

The Aquariums produced the over 90% of the company's PBT in 2018.  Even though the Flyer is profitable, it is still appears to be under-utilised.

The Shanghai aquarium lease lasts till 2037 (plus renewable for another 10 years).  Xiamen is till 2034.  The Flyer is till 2035, with an option to renew for 15 years.

Ticket sales are 90% of revenue.

The income and cashflow statements are straightforward.  The biggest cost is staff, followed by (depreciation + operating lease).  Then repairs plus maintenance.

In normal years, this business spits out money.  In 9M19, net margins before tax were 50 percent!  EPS for the 12 months till 3Q19 were 4.91c.  EPS for 2018 was 4.85c.

All their attractions are currently non-operational.  Annual operating costs in 2018 was 63m, around 8c per share.  Mostly cash, with about 1c/share depreciation.  And mostly fixed costs (staff).  So we could see the company losing 0.58c per share (cash) every month until their attractions re-open.

As of Feb 2020, net cash is 12.6c/share.  After subtracting all liabilities.

I see the coronavirus as a chance to buy the dip.  I think the virus will die down in summer (June).  Assuming 2020 is a write off, they still have 13 years for Xiamen, 16 for Shanghai, and 14 for the Flyer.  Then I would just sit back and collect dividends, or wait for it to re-rate (eg: 12 times earnings ex cash).  The price may shoot up if we get another acquisition and the stock is re-rated as a growth stock.

Bought 31000 shares at 51c. Thats 8X normal-year earnings, ex cash.

Risks:

• External events can affect visitor numbers.  Gulangyu island was listed as UNSECO world heritage site in July 2017, and the government tried to reduce the number of visitors, which declined over the next two years.  OTOH, the opening of Disneyland Shanghai helped increase visitors to underwater world.
• CEO Mr Wu Hsioh Kwang has been an astute and cautious capital allocator.  But he is 69 this year.  Not sure if his experience, judgement and intuition can be replaced ("It was the same feeling I got while standing in Pudong in 1990....").  He and his wife own over 50% of the company.
• As an S-chip, I would limit purchase to 2% of my portfolio.  There's a risk of China devaluing its currency, and in a crisis they may not allow money to be transferred out.
• The Singapore Flyer stopped in November due to a "minor" problem, but we have heard no news yet.  The company has not provided any updates, timetable, or detailed description of the problem.  The stock market hates uncertainty, but the company does not communicate well.  We start to wonder if its a "bigger" problem.