Straco Corporation:What lies ahead
Straco Corporation specialises in leisure attractions, in particular aquariums in China.It generates good free cash flow and has high margins, little inventory, sounds like a great business to own.
But, wait a minute, one of its aquarium is in Shanghai and Disneyland is scheduled to open to the public in Dec 2015. Since both of these attractions has an overlap of customers,especially family with kids, the competition will be keen for those families with tight budgets. Being the newer attraction and a more alluring one, Disneyland will win.
Thus, Straco has to invest in its aquarium to keep attracting visitors like what Ocean Park did in Hongkong to fight against Disneyland(HK). This means that the huge pile of cash seen on the balance sheet is bound to be reduced. Hopefully, Straco need not reduce admission price to attract visitors, else it will be a double whammy.
Considering that the lease of Shanghai Aquarium is up in another 2 decades time,is it advisable to invest greatly? How the management deploys its cash, whether in aquiring new aquariums (CEO has recently visited Yunnan aquarium and expressed interest) will be critical in the future of Straco.
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