Peter Graham Lancashire (left), a shareholder of Straco Corporation, lives in Switzerland from where he regularly visits www.NextInsight.net . An Oxford-educated lawyer, he also holds a MBA from Insead. Retired from a career in pharmaceuticals, he owns a number of Singapore-listed stocks in his portfolio.
MY FAVOURITE stock is Straco Corporation which Kevin Scully, executive chairman of NRA Capital, first highlighted in October 2012 (Kevin Scully: "Am adding STRACO CORP to my Yield Stock Picks").
It prompted me to do further analysis.
Straco owns and operates the Shanghai Ocean Aquarium which is within walking distance of other tourist attractions such as the Oriental Pearl Tower and The Bund. Photo: InternetKey positives are:
The business is in a growth segment: China's inland tourism.
Straco's tourist attractions -- Shanghai Ocean Aquarium, Underwater World Xiamen, and Cable Car at Mount Lista in Xi`an -- are proprietary brands with first mover advantages and a long life, if nurtured.
I believe the business has enough pricing power and a proven management, including founder Wu Hsioh Kwang who is the Executive Chairman and CEO.
I have to admit that I have not yet had the chance to look management in the eye!
Wu Hsioh Kwang and wife Chua Soh Har.The business is owner-driven: Mr Wu and his wife (left) own 58% in aggregate of Straco, and the company has a stock options scheme in place for its employees.
There is room for further growth in the business e.g. a new project is in the pipeline for 2015/2016 -- the Chao Yuan Ge project which is accessible by Straco’s cable car in Xi’an.
There, Straco is restoring the grand "Hua Qing Palace" to showcase the culture and unique architectural features from the Tang Dynasty through reconstructed replicas of its major buildings.
Strong financials
Straco reported strong Q3 results with, notably, cash up a third to S$121.4 million (including $21.12 million paid as deposit to tender for a project).
Tax paid is up -- the acid test. Most companies keep a close watch on their tax rate, and attempt to keep it as low as possible.
Therefore when tax paid (hard cash out) goes up, it is an indicator that profits are really moving in the right direction, otherwise the company would fight the tax increase.
Net Asset value is also up, and the business has no debt.
It's highly profitable (Return On Assets :18.06%, Return On Equity:19.42% in 2012. Source: ft.com).
There are minimal institutional positions of less than half a percent, according to Morningstar data. (Interestingly Dimensional Fund Advisors, a "mover and shaker" has a minimal "toe in the water" holding).
Valuation -- despite a terrific run in the past year, the stock is still not out of sight in relation to growth prospects. Its PE ratio based on the latest 4 quarters' earnings is 11.7. Price-to-cashflow ratio (for 2012) is 11.70. 
Straco has moved up about 3 fold in 3 years -- from 13.5 cents in Sept 2010 to 43.5 cents recently. It has a market cap of S$367 million and a trailing PE of 11.7. Chart: Bloomberg
Key risks:
> The stock is rather illiquid, which may not permit a rapid exit for investors.
> It may be perceived to have S-Chip issues, despite having a top 4 auditor. However, Straco is majority owned by Singaporeans and is headquartered in Singapore.
> Heavy-weight competition e.g. Resorts World, could duplicate their Beijing aquarium in Shanghai!
> State intervention e,g, on new projects, licences or pricing.
> Government measures affecting tourism spending.
> Founder cashes out.
> Renmimbi exchange rate versus Sgd.
Obviously I am vested.
Recent stories:
Kevin Scully: "3Q results of STRACO and MIDAS were strong"
STRACO CORP: After another solid year and a bigger cashpile, will there be M&A?
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