Straco Corporation - CIMB Research 2016-02-25: Weak macro taking its toll on visitor numbers

Straco Corporation - CIMB Research 2016-02-25: Weak macro taking its toll on visitor numbers STRACO CORPORATION LIMITED S85.SI 

Straco Corporation - Weak macro taking its toll on visitor numbers 

  • 4Q15 net profit of S$6.3m was slightly below expectations due to lower contributions from Straco’s attractions in China. FY15 net profit formed 99% of our forecast. 
  • Straco felt the pinch of a weak macro environment in 4Q15. Although visitor numbers recovered slightly in Jan-Feb, we expect growth in 2016 to be tepid. 
  • Total DPS of 2.5 Scts was declared, bringing FY15 yield to 3%. 
  • Downgrade to Hold, with a lower DCF-based target price of S$0.86 (12% WACC) as we cut FY16-18 EPS by 7-10% in expectation of fewer visitors to its attractions. 

■ 4Q15 missed due to lower China contributions, higher expenses 

  • 4Q15 revenue rose 23% yoy to S$23.8m, purely lifted by contributions from the Singapore Flyer (vs. one month in 4Q14), while revenue from its China attractions fell. 
  • 4Q15 total expenses rose 13% yoy, mainly due to higher finance costs and depreciation related to the Flyer. 
  • Excluding one-time Flyer acquisition costs of S$1.98m in 4Q14, total expenses would have risen 32% yoy. 
  • 4Q15 core net profit fell 2% yoy to S$6.3m. Total DPS of 2.5 Scts was declared, in line with our forecast, and bringing FY15 yield to 3%. 

■ Slowdown in China attractions due to weak macro environment 

  • 4Q15 felt the pinch from a slowing macro environment, as visitation to its three China attractions- Shanghai Ocean Aquarium (SOA), Underwater World Xiamen (UWX) and Lixing Cable Car (LCC)- declined yoy. 
  • Straco saw a total of 939,000 visitors to all its attractions, including the Flyer, in 4Q15. Assuming yoy flat visitor arrivals to the Flyer, we estimate that 4Q15 visitation to its China attractions fell 3% yoy. 
  • Guidance was that visitation recovered in early 2016 but we expect the poor outlook to weigh on tourism. 

■ Visitor growth at China aquariums unlikely to be exciting in 2016 

  • FY15 revenue from SOA and UWX rose 2% yoy to S$86.7m, slower than the 22-33% yoy recorded in 2012-14, partly due to the relocation of the ferry terminal away from UWX. 
  • PBT from the aquariums fell 1% yoy to S$62.3m as PBT margin contracted 2% pts to 71.9% on higher depreciation. 
  • UWX has stabilised and troughed in 2H15, while SOA may benefit from Shanghai Disneyland opening in Jun 2016. However, we think growth is unlikely to be exciting in 2016 with a sustained weak macro environment. 

■ Flyer visitation to remain flattish until redevelopment 

  • For its maiden full-year contribution, the Flyer added S$38.8m in revenue and S$11.6m in PBT (32.5% PBT margin). Total visitation to the Flyer was broadly flat yoy at c.1.4m. 
  • In 11M15, total tourist arrivals to Singapore only rose 0.4% yoy and the outlook remains tepid. As such, we expect visitor arrivals at the Flyer to remain flattish, and any upside will have to come from yield improvements (i.e. better mix of walk-ins vs. tour groups). 
  • Further out, the key catalyst is the redevelopment of the retail terminal at the Flyer. 

■ Downgrade to Hold; revisit when catalysts become more visible 

  • We downgrade from Add to Hold, given the impact of a weak macro outlook on visitation to its attractions. 
  • The key re-rating catalysts are: 
    1. S$20m-30m redevelopment of the retail terminal at the Flyer, and 
    2. ticket price hike at SOA and UWX, but these are further out. 
  • We would turn more positive on clearer signs of both coming to fruition. Our DCF-based target price falls to S$0.86 (12% WACC) as we cut our EPS forecasts.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-02-25
CIMB Securities SGX Stock Analyst Report HOLD Downgrade ADD 0.86 Down 1.00