CIMB highlights Straco's "strong underlying momentum"
Analysts: Jessalynn CHEN and Kenneth NG, CFA (left)Straco’s 1H14 net profit formed 39% of our full-year forecast, which we deem in line as 2H is seasonally stronger (peak season falls in 3Q and typically accounts for 45% of the year’s net profit).
Visitor arrivals at its aquariums surprised on the upside, driven by favourable government policies that incentivise domestic travel. However, forex losses continued to hit the bottomline as the Rmb depreciated against the S$, bringing net profit closer to our estimates.
Our DCF-based target price rises to S$0.96 after we tweak our FY14-16 EPS forecasts and remove the liquidity premium (WACC 11%). Possible re-rating catalysts are potential acquisition of a tourism asset in Asia, better capacity utilisation and potential ticket price revisions. Maintain Add.
Strong quarter downplayed by forex loss
Another positive is that operating expenses (-4% yoy) were managed well, as the decrease in fixed costs (c.80% of operating expenses) outpaced the growth in variable costs.
Straco's flagship aquarium, the Shanghai Ocean Aquarium (above) and its Underwater World Xiamen attracted a 22% jump in visitors in 2Q this year. Photo: InternetHowever, the operational efficiency gains were downplayed by admin expenses (+142% yoy), which continued to be hit by forex losses as the Rmb depreciated further against the S$. Excluding forex losses, PBT would have grown by 30% yoy instead of the +13% yoy recorded, while admin expenses would have risen by a more palatable 14% yoy on higher employee share option expenses and miscellaneous costs.
Straco ended the quarter with S$100m net cash, which leaves more than sufficient funds to complete the acquisition of the tourism asset that it has guided for.
Remains an Add
Other (smaller) catalysts include:
Excluding contributions from the potential acquisition, our target price implies 20x FY15 P/E, in line with regional tourism peers.
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