Straco Corporation - CIMB Research 2015-12-09: 2017 is the year to watch

Straco Corporation - CIMB Research 2015-12-09: 2017 is the year to watch STRACO CORPORATION LIMITED S85.SI 

Straco Corporation - 2017 is the year to watch 

  • Catalysts ahead include: 
    1. opening of Shanghai Disneyland in 2016, which will drive higher visitation to SOA, and 
    2. ticket price hike at SOA and UWX in 2017. 
  • STCO has strong operating cashflow generation, with sufficient net cash of S$64m to fund redevelopment of the retail terminal at the Singapore Flyer (S$20m-30m). 
  • Strong operating leverage as c.80% of its costs for its aquariums are fixed. 
  • Maintain Add, with a DCF-based target price of S$1.00 (12% WACC). 

■ Underwater World Xiamen to bottom out in 1Q16 

  • Underwater World Xiamen (UWX) has seen 25-30% yoy fall in visitor arrivals in 2Q15- 3Q15, due to: 
    1. cap on daily visitation to Gulangyu island where it is located, and 
    2. relocation of the ferry terminal to the opposite end of the island from the aquarium. 
  • We expect a bottoming out of visitor arrivals at UWX in 1Q16, with mitigating measures put in place such as extended operating hours and completion of landscape improvement works in early 2016. 

■ Shanghai Disneyland to be the catalyst in FY16 

  • Shanghai Disneyland is slated to open in the spring of 2016, and is expected to receive 7m-10m visitors annually. This compares to the 7.5m and 14.2m visitors that Hong Kong Disneyland and Paris Disneyland received, respectively, in 2014. 
  • We expect the opening of Shanghai Disneyland to drive stronger visitation at Shanghai Ocean Aquarium (SOA) in 2H16. 

■ Ticket price hike in FY17 to be the key catalyst 

  • We have factored in a 15% ticket price hike at SOA and a 12.5% price hike at UWX in 2017, in line with previous price hikes. 
  • We expect this to be the key reason driving 17.5% earnings growth in FY17. 
  • We view the ticket price hikes as the key catalyst to look out for, as the entire amount of the price hike will flow through to the bottomline. 

■ Redevelopment at the Flyer 

  • Redevelopment plans for the retail terminal of the Flyer remain underway, with construction expected to commence in 2016. The development cost is estimated at S$20m-30m which can be funded via internal cash. 
  • As at end-3Q15, STCO has net cash of S$64.0m. 
  • We also expect better rental income at the Flyer post-redevelopment, which we have yet to factor in our forecast, pending details on the redevelopment plans. 

■ Maintain Add 

  • We maintain our Add call with an unchanged DCF-based target price of S$1.00 (WACC: 12%). 
  • STCO remains a beneficiary of rising domestic consumption and demand for travel in China. 
  • We continue to like it for its strong operating cashflow generation and operating leverage, as c.80% of its costs for its aquariums are fixed. 
  • The key catalyst to look out for is the ticket price hike in FY17. Its dividend yield of 3% is also decent.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.00 Same 1.00