VICOM

(25-10-2019, 02:05 PM)specuvestor Wrote:

(25-10-2019, 12:41 PM)weijian Wrote: The secret to VICOM's moat is not regulation nor the duopoly, but the pittance of how much it cost to inspect your vehicle - It costs 62sgd every 2years. First benchmark this to the cost of owning the vehicle (>100k) and then the other necessary costs of operating one on a monthly basis (insurance = 1XXsgd, season parking = 1XXsgd, fuel = 1XXsgd), and 62sgd every 2years (or yearly if vehicle >10years old) becomes really a negligible cost. It will probably fly under the radar for some time.

But of course, that doesn't stop some folks (eg. the taxi MP) from trying to poke holes into the inspection regime/prices every now and then.

https://www.mot.gov.sg/news-centre/news/...te%20Cars/

https://www.mot.gov.sg/news-centre/news/...20Onwards/

To be fair anything statutory / mandatory and yet privately owned with little competition is a potential gravy train... and has been used regularly and globally. For example direct award of VEP system to TCSens Sdn Bhd.

the big MY gravy train was MY. EG services' type of e-govt services under Najib's time. Seems like that gravy train still chugging along fine....

It is true that the cost of vehicle inspection is low relative to the total cost of vehicle ownership. But people are always out to save money, even if it is a couple of bucks. This includes cheating on parking coupons, which in most cases wouldn't have saved the driver more than a dollar or so. Yet, it is done in spite of the massively disproportionate penalty/risk.

If the vehicle inspection market were to be more open to competing service providers, I could open an inspection centre and offer prices 15-20% lower than VICOM. The lower margins will very likely be made up by higher volume. Assuming that there will be an overwhelming number of customers, I can keep a lid on overheads by keeping the number of inspection centres low, and extending operating hours. And maybe re-design and automate some parts of the inspection process to create higher throughput.

Since the first time I used VICOM's services some 15 or so years ago, nothing of significance seems to have changed. Even the PPE -- which is probably rather low-cost since it is low-tech -- does not seem to have been upgraded. Save for the credit card salesperson pushing their products to people waiting for their vehicles to be inspected.

Been a good stock to own since inspections started to spike. Probably gonna let go next year as the peak in COE issued 3 years before is reached, after which likely Vicom top line will see some reduction.

(27-10-2019, 09:28 PM)BlueKelah Wrote: Been a good stock to own since inspections started to spike. Probably gonna let go next year as the peak in COE issued 3 years before is reached, after which likely Vicom top line will see some reduction.

There was a record COE issue in around ~2003-2006 period (~4years period). As these cars aged, the peak in inspection came ~8 years later from 2013-2016 as they hit the 7/9th year mark. Based on my back of envelope calculation, the record COE issue in that 4 year period accounted for ~80% of all vehicles on the road (422k/514k).

The current record COE issue started 3 years ago as you mentioned. Another back of envelope calculation in the last 3 years show that this peak now accounts for ~50% (312k/615k) of all vehicles on the road. The peak seems to have been considerably diminished compared to the prior decade's peak, mainly as more owners extended their COEs beyond 10years. In the last 2-3years, there seems to be ~80k increase of >10year vehicles plying the roads, which is a record i reckon. These vehicles have to do yearly inspection.

The current record COE issue will probably start to "spike" VICOM's earnings in another 3-4 years time (2023-2024) when these cars start to enter their 7/9th year inspection schedule. But then again, it would be tempered down with those >10year cars that have their 5year COE expiring. I don't think a lot of people like to keep their cars beyond 15th year.

Moving on, I suspect the prior decade's "boom/bust" should be considerably tempered down moving forward, due to the record >10year car population providing some kind of anti cyclical offset to it. We will be probably getting more balanced vehicular age from now on.

(30-10-2019, 11:12 AM)weijian Wrote:

(27-10-2019, 09:28 PM)BlueKelah Wrote: Been a good stock to own since inspections started to spike. Probably gonna let go next year as the peak in COE issued 3 years before is reached, after which likely Vicom top line will see some reduction.

There was a record COE issue in around ~2003-2006 period (~4years period). As these cars aged, the peak in inspection came ~8 years later from 2013-2016 as they hit the 7/9th year mark. Based on my back of envelope calculation, the record COE issue in that 4 year period accounted for ~80% of all vehicles on the road (422k/514k).

The current record COE issue started 3 years ago as you mentioned. Another back of envelope calculation in the last 3 years show that this peak now accounts for ~50% (312k/615k) of all vehicles on the road. The peak seems to have been considerably diminished compared to the prior decade's peak, mainly as more owners extended their COEs beyond 10years. In the last 2-3years, there seems to be ~80k increase of >10year vehicles plying the roads, which is a record i reckon. These vehicles have to do yearly inspection.

The current record COE issue will probably start to "spike" VICOM's earnings in another 3-4 years time (2023-2024) when these cars start to enter their 7/9th year inspection schedule. But then again, it would be tempered down with those >10year cars that have their 5year COE expiring. I don't think a lot of people like to keep their cars beyond 15th year.

Moving on, I suspect the prior decade's "boom/bust" should be considerably tempered down moving forward, due to the record >10year car population providing some kind of anti cyclical offset to it. We will be probably getting more balanced vehicular age from now on.

 
Actually record new COE registration peaked in 2017 i think. 
https://www.lta.gov.sg/content/dam/ltawe...by_COE.pdf

125k (2017) -> 107k (2018) 
from this i would think record issuance peak in 2017 and has been coming down as per the economy getting bad from trade war etc. Not sure how much the 10year renewal numbers, do you have numbers? So from this likely 2020 is the peak for the 3 year checks to hit so likely VICOM will see a slowdown to revenue after 2020. In any case, yield is dropping as price goes up and at some point will not make sense to keep anymore as revenue and earnings unlikely to grow much.

(30-10-2019, 11:33 AM)BlueKelah Wrote:  
Actually record new COE registration peaked in 2017 i think. 
https://www.lta.gov.sg/content/dam/ltawe...by_COE.pdf

125k (2017) -> 107k (2018) 
from this i would think record issuance peak in 2017 and has been coming down as per the economy getting bad from trade war etc. Not sure how much the 10year renewal numbers, do you have numbers? So from this likely 2020 is the peak for the 3 year checks to hit so likely VICOM will see a slowdown to revenue after 2020. In any case, yield is dropping as price goes up and at some point will not make sense to keep anymore as revenue and earnings unlikely to grow much.

hi BlueKelah,
we probably need to take a period of time to define a peak, rather than 1 single year. Using 1 single year, we lose alot of resolution.

Based on the excel sheet that i kept on VICOM, the 10yr renewal percentages (simply define as current year's 11th year population divide by prior year's 10th year population) is 28.8k/107.5k (26.7%) in 2016, 28.5k/97.6k (29%) in 2017 and 37.7k/88.6k (42.5%) in 2018.

I think CY09 once mentioned that VICOM's earning/yield is probably much stronger than most REITs if really compare apple to apple on an unleveraged basis.

To be honest, VICOM shareholders cannot depend on vehicular testing for growth since SG gov has already cut the passenger car growth from 0.25% to 0% from 2018 onwards. Any future earnings growth has to come from SETSCO (another story) or regulation changes (eg. mandating PHV to have similar testing schedule as taxis OR implementing new forms of tests due to environmental concerns etc)

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It is interesting to note that a transport bill passed in Sept2019 mandates all PHV to be tested on a yearly basis. This will take effect in July 2020 (source: VICOM's AR19).

Based on the quoted 45k PHC cars quoted in the article,

- Yearly inspections for PHC (before new rule) and assuming 20% are already >10years old = (0.8*45k*4 inspections over 10years)/10 = 14,400

- Yearly inspections for PHC (after new rule) and assuming 20% are already >10years old = (0.8*45k*9 inspections over 10years)/10 = 32,400

- Assume VICOM captures 70% market share --> 0.7*(32400-14400) x 62 sgd per visit = 0.7*(18000)*62sgd = 780k per year of profits OR a nice 2-3% increase in base profits due to this regulation change.

https://www.channelnewsasia.com/news/sin...l-11786370

https://links.sgx.com/FileOpen/1.%20VICO...eID=608281

Company is pleased to announce that the
deferred Thirty-Ninth AGM will be convened and held electronic means on Wednesday 20th
May 2020 at 10.00 a.m. (the “AGM”) to transact the business set out in the Original AGM
Notice.

Attendance via Webcast: Shareholders who wish to attend the AGM via webcast are
required to pre-register at the following website:
www.vicom.com.sg/agm2020registration by 10.00am on Sunday 17th May 2020 to
enable the Company to verify their status as Shareholders. Following the verification,
authenticated Shareholders will receive an email by 19th May 2020, containing user ID
and password details as well as the link to access the webcast of the AGM. Please do
not disclose your ID or password details to persons who are not entitled to attend the
AGM. Your presence via webcast shall be taken as attendance at the AGM.


Dividend payout date has been revised to 05-June-2020

Half YR report out
Operating Profit after COVID-19 Government reliefs 16,817 11,444 (-31.9%)

Revenue
The Group’s total revenue of $39.8 million for 1H20 was $11.3 million or 22.0% lower than 1H19,
contributed by lower business volumes affected by the impact of COVID-19.

With economic activity grinding to a halt especially during the Circuit Breaker period, VICOM’s operations have been hard hit. This has been especially so for the non-vehicle testing services business which is directly dependent on the level of economic activity in the country. 

In the coming 2H20, the Group is expected to fund investing activities which included the cost for
additions & alterations to the new building at Bukit Batok and for the relocation of the existing machinery
& equipment from the current location. The cost of these activities is estimated to be $25.0 million.

GROUP OUTLOOK
For the vehicle testing business, the demand for periodic testing is expected to pick up with the
resumption of private vehicle inspection from 8 June 2020, following the end of the Circuit Breaker
period. However, the demand for emission testing and type approval of new cars will be negatively
affected, as part of the quota for Certificates of Entitlement for the April-June 20 period is carried forward
to the next calendar year.

For non-vehicle testing, the business is expected to recover from the lows during the Circuit Breaker
period. The pace of recovery will be linked to the recovery of the local economy, particularly in key
industries such as Construction, Marine & Offshore, Oil & Gas and Food & Bio-Chemistry. Profit margins
are also expected to be further trimmed as competitors bid more aggressively for a significantly lower
volume of work available. It also remains to be seen whether demand will recover to pre-COVID-19
levels or to a new normal.
The outlook for both business segments assumes that Singapore does not re-enter another circuit
breaker.

No interim dividend is declared for 1H20 in order to conserve cash during this period of COVID-19
uncertainties. Final dividend for FY2020 will be reviewed at end of the financial year in accordance with
the existing dividend policy.

Cash and cash equivalents at end of period 88,989 (89 millions)