Straco Corporation

Benefit of straco is they have an existing cash cow business to support the flyer business so they are not in the similar time frame of the preceding entity which was marred by interest expense.

Can we get any financials on the preceding entity from acra? It will offer more insights than qualitative analysis.

Using CIMB report, Straco needs to achieve approx 2.0 Million tourist arrival per year at Singapore Flyer. I had treated the $140M under the assumption as a loan with annual payback and 6% annual interest. Straco has to get back 12.55M every year over 19 years

IMO achieving a 2.0M rate is tough given the flyer sees slightly under 1.3M of tourist arrival annually. Even if one assumes the CIMB report as too conservative, and sets 1.9M arrivals to enable the investment to breakeven at 6% IRR; the figure is not easy.

The London Eye currently sees approx 4M tourist annually with London's inbound tourism at 32.8M. Singapore has a tourism number of 15.5m (excluding Malaysians who visit via the causeway and linkway). Therefore, one can argue the flyer just has to achieve the London's eye success rate. However, this will entail a spruce up and revamp of the Flyer, resulting in more cost. And the Flyer only has a lease of 19 years remaining.

Not a convincing buyback - only 125 lots?

With the recent downturn in tourist number (especially from China due to the MHA incident), seem hard to achieve the breakeven level ....

(29-08-2014, 10:36 PM)greengiraffe Wrote: Aiya...

just be patient lah, Co already no fear buying their own shares despite supposedly taking on gearing.

Moreover, this is the first major acquisition in high land costs Singapore after making so much money from China, where land costs is substantially lower and certainly boasts of the World's largest population.

Wu not stupid lah - hard earned money leh...

Sometimes simply because of share price fluctuations spooked so many investors...

The flyer acquisition price is already a huge hair-cut, ie the previously over zealous guy already flushed down the toilet bowl... what more u guys want...

STB also want to ensure that the wheel continue to spin... no eye sore at Marina Bay... cannot afford to screw up so many times.

Just wait lah... in the end, nay sayers will be proved stupid again just like all the doubters in Towkay Charoen who has been writing literal "blank cheques" across the globe..

GG

Somehow I got this feeling that the pessimism surrounding the acquisition has to do with the market voting down the price of straco.

It is quite obvious Straco has several things going for it.

1) lower interest costs

2) potential anchor tenant Zouk

3) STB support ( face saving ). The best support they can give, although highly unlikely is to allow company to sponsor/adopt the Flyer through advertisement at the Flyer.

4) WTS as a JV partner.

I am not saying Straco can turnaround Flyer in a year, but personally, I think it is a matter of when.

The vote down is mainly due to, IMHO, the market value Straco as either a grower or a dividend riser. With likely hood of Capex increasing and use of cash hoard, increasing dividends is a tough call now.

As for growth, Flyer will be a drag in the short term.

Valuation is not cheap for grower play.

It is more like a turnaround play now, with a discount required for higher risk associated with buying FLYer as opposed to buying a profitable business.

If Flyer does turn around, I do not see it as a big problem extending the option of 15 more years.

Personally, I think the problem is not so
Much the business, or the acquisition but valuation. But the 10% fall is making people doubt the business.

Besides the numbers, I think Singapore Flyer is a quality tourist attraction.

(31-08-2014, 09:48 PM)Greenrookie Wrote: Somehow I got this feeling that the pessimism surrounding the acquisition has to do with the market voting down the price of straco.

It is quite obvious Straco has several things going for it.

1) lower interest costs

2) potential anchor tenant Zouk

3) STB support ( face saving ). The best support they can give, although highly unlikely is to allow company to sponsor/adopt the Flyer through advertisement at the Flyer.

4) WTS as a JV partner.

I am not saying Straco can turnaround Flyer in a year, but personally, I think it is a matter of when.

The vote down is mainly due to, IMHO, the market value Straco as either a grower or a dividend riser. With likely hood of Capex increasing and use of cash hoard, increasing dividends is a tough call now.

As for growth, Flyer will be a drag in the short term.

Valuation is not cheap for grower play.

It is more like a turnaround play now, with a discount required for higher risk associated with buying FLYer as opposed to buying a profitable business.

If Flyer does turn around, I do not see it as a big problem extending the option of 15 more years.

Personally, I think the problem is not so
Much the business, or the acquisition but valuation. But the 10% fall is making people doubt the business.

Besides the numbers, I think Singapore Flyer is a quality tourist attraction.

its at 18 times PE. if it grows 25% for 5 years, thats not a good enough grower?

I fear making the same mistake I did in 2013 - underestimating the growth potential of the 2 aquariums. Flyer or no Flyer, I don't think that growth profile will change.

(01-09-2014, 10:56 AM)Nick Wrote: I fear making the same mistake I did in 2013 - underestimating the growth potential of the 2 aquariums. Flyer or no Flyer, I don't think that growth profile will change.

Let's me play a bit of devil advocate, amid the optimistic views around

First of all, Flyer is a huge moving structure, vs the static aquariums. Anything with that size move, especially under a heavier load, is likely to give "problem(s)". The Flyer has similar issue previously albeit "solved" by additional of 3 mil assets. The Flyer might also be affected by haze, which suppose to be more frequent in the near future?

There should be a saturation point on the growth of existing assets, the question is the point close enough now? I don't know yet. May be it can be reasonable answered by some buddies here.

Mr. Market expectation of growth, should be mostly from the new tender(s). Will the investment in Flyer limit the the other acquisition to sustain the growth? The growth should be surely affected, if Flyer doesn't achieve the growth anticipated, not only to remain profitable.

Well, I might be having too many unnecessary doubts.

(not vested, but monitoring and waiting)

My 3cents of thoughts for those interested:
1. If you are vested and looking at high growth play, time to sell and move on. Management has indicated as much that the flyer is no soa.
2. If you are vested and long term, that should be fine. Mr wu is not walking into this deal blindly, surely there are compelling enough reasons to bid this deal. At worst case, they will take losses and sell to yet another party.
3. If not yet vested, I think waiting is probably the best option. Straco is currently at a high priced level and it makes more sense to go in with more margin of safety, and more information on the details.

(divested. Who knows, I may yet re-enter this stock.)

Firstly, who will be taking the Flyer in the next 12 months ah? I think it is obvious the Flyer revenue is going to be tourist generated.

Secondly the rental income is a chicken and egg scenario that is also dependent on tourist arrival. But at least locals can drive it if access is convenient.

Thirdly using own money to increase stake is different incentive structure and signalling vs share buyback, though both are incrementally positive.

Fourthly the risk for Straco is limited to the investment amount put into the venture, unless it continues to pump in money even when loss. But since the understanding is that Flyer is FCF positive, then it should be limited to $140m investment. That should be the MOS calculation

IMHO like I said previously using Sentosa as analogy, the most important ingredient is convenient access to Flyer to start the ball rolling.

Just a quick question here: Do forummers here consider Straco to be an S Chip?