Will Straco Corp be de-listed from SGX?

With a slew of SGX listed companies being privatized recently, one wonders whether Straco Corp will be the next to be de-listed. The latest company to be delisted from the Singapore Exchange is Super Group, which is acquired by Dutch coffee firm JDE for a whopping $1.45 billion.

Will Straco Corp be de-listed?

Recently, Straco Corp purchased a total of 269,800 shares by way of on-market purchase for a total consideration of $206,000 in 3Q2016. These shares purchased were made out of the company’s capital and held as treasury shares. As of now, the company is holding 10 million treasury shares.

The key internal stakeholders, namely Straco Holding Pte Ltd, China Poly Group Corp and Straco (HK) Limited, hold about 75% of the company shares. Under such situation, the management may make an offer to minority shareholders in a bid to de-list the company. Thus, I am cautious about investing in Straco Corp. What if the offer is way below the price level at which I buy the shares? If this is to happen, I would have sustained losses in my investment.

Of course, all these are just speculative thoughts. But assuming Straco Corp made an offer of $0.80 per share to shareholders, the management only needs to splash out an estimated $103 million to exceed the 90 percent threshold to de-list the company, Based on the latest quarter report, Straco Corp currently holds about $160 million amount of hard cash. Thus, privatizing the company would not be a major issue.

The motivating factors for Straco Corp would be the savings from listing costs and resources saved on corporate governance compliance efforts. Being a private company also means that dividends would not need to be distributed to external shareholders.

Straco Corp 3Q16 results

Notwithstanding the current weak market sentiments, the tourism-related operator continued to report strong performance for 3Q16. There was a marginal decline in Group revenue to $47.63 million for the third quarter ended 30 September 2016 compared to 3Q2015, mainly attributable to the lower revenue contributed by Underwater World Xiamen and Lixing Cable Car. Cumulatively, Group revenue for the nine months of 2016 decreased 1.8%, while Group profit fell 5.7%.

Executive Chairman, Mr Wu Hsioh Kwang noted that their two aquariums in China registered higher visitor arrivals during the summer holidays in July and August compared to the corresponding period last year. Mr Wu added: “Better yield was achieved for Singapore Flyer which contributed to an increase in overall revenue for the Singapore operation.”

To be frank, to be able to achieve a profit of $24 million for current third quarter is a very good achievement given the slowing market in China. Then again, the management had consistently delivered in the past. The Return of Asset (ROA) and Return of Equity (ROE) have been double digits for the past five years for Straco Corp.

My Strategy

Although Straco Corp’s business is in tourism and the industry is not exactly sexy, the field is considered ever-green. Nonetheless, the company’s prospect will be affected by government policies and market conditions. To grow and scale the business, Straco Corp will need to source for new tourism projects or form strategic partnerships to tap into the expected tourism boom in Asia.

The current price is way too ahead of its value and the possibility of Straco Corp being privatized deters me from investing in this interesting stock. I may enter this counter only at $0.20.

Magically yours,

SG Wealth Builder