VICOM

[Qiaofeng]

Have been looking at Vicom bizs for some time,
Some Qs , I hope those vested could help me to answer…

(2004 to 2010; 6yrs data)

Vehicle Inspection Biz
1) Main Competitor?
2) % Mkt share vs competitors ?
3) Revenue growth over the yrs-- Is it due to increase in Vehicle numbers or due to increase in price charged?
4) Any idea of Avg Prices trend charged over the yrs?
Does govt set the prices for the inspection?
5) Is this biz protected by any legislation/Act?
6) Any idea of vehicles tested over the yrs ?--i.e. type and nos. of each types
7) Op Margins have been growing approx. 29% (2004) to 35% (2010) – Reason?
8) Why doesn't a company such as ST Kinetics of ST Engg break into this biz, when the margins are so high?

Test & Inspection Services Data
1) Main Competitors?
2) % Mkt share vs competitors for the 5 Services Division?
Which of the Services generates most revenue and profits?
3) Revenue growth over the yrs has been good, which of the 5 drives growth?
Op Margins has been growing from 9% (2004) to 19% (2010) – Why?
4) Any idea of Avg Prices trend charged over the yrs?
Does govt set the prices for the tests, certification & accreditation ?
Are other govt agencies who are competitors as well ?
5) Are the services compulsory by any legislation/Act?

Rentals & Other related bizs
1) Forms 1/3 of segmental Op Profits; is significant, but, what are these related bizs?
2) Rentals- Occupancy?

Thks very much , if some kind forumer can give some answers.

[FFNow]

Qiaofeng, STA (a subsidiary of Singapore Technologies Kinetics Ltd) is also in this vehicle inspection business. It's a competitor to Vicom. However, I don't think they are in the testing business that Vicom is in and this segment provides most of the revenue for Vicom.

[Qiaofeng]

Qiaofeng, STA (a subsidiary of Singapore Technologies Kinetics Ltd) is also in this vehicle inspection business. It's a competitor to Vicom. However, I don't think they are in the testing business that Vicom is in and this segment provides most of the revenue for Vicom.

Sorry for my shallow knowledge of the Vehicle inspection biz, I have only used the AAS, Eunos (long long ago) and Vicom, Changi (recent yrs) Vehicle inspection Centres and did not know that STA is a competitor; which I thot was a logical biz for the ST Kinetics grp.

When did STA entered the biz and what % of mkt share does the different incumbents share?

The FS (financial statements) show that 2/3 of revenues come from the testing biz; but only 1/3 of the Op profits comes from there, and the AR (Annual Report) says the tesing biz is becoming more competitive.

Vicom looks like a good FCF biz,altho looking at the low capex, I am wondering why the divd policy is below 50%.
I would like to clarify above Qs to evaluate if I should consider vesting in.

---

Qiaofeng, STA (a subsidiary of Singapore Technologies Kinetics Ltd) is also in this vehicle inspection business. It's a competitor to Vicom. However, I don't think they are in the testing business that Vicom is in and this segment provides most of the revenue for Vicom.

Took a look at their prices, looks the same
http://www.stai.com.sg/services01.html
http://www.vicom.com.sg/inspectionprice.htm

So what is the basis of competition, since the service offerings are the same?

Based on 7 locations for Vicom & 2 locations for STA.
what is % mkt share for Vicoms' 7 inspection centres?

[weijian]

Vicom looks like a good FCF biz,altho looking at the low capex, I am wondering why the divd policy is below 50%.

some alternative views - i dont think VICOM has low capex. It's capex is 20-40% of net profit over the last 5years and i feel that is slightly on the high side. The capex spending spikes periodically and hence that's why it looks like it is low.

But it does have a good FCF biz - because of its good margins and the high capex of previous years (depreciation/amor) adds back from net income to FCF.

i suspect divd policy is <50% is because mgt has plans for expansion (additional capex). Either way, the low payout ratio represent a good cushion for vicom to be a dividend play.

The alternate view for low divd policy is - the cash is fake.

(not vested. Wants to be, but it has never went below my perceived 'margin of safety' price)

[Nick]

The dividend policy is > 50%. Was there a year when dividend < 50% of its net profit ?

[weijian]

i am sorry, i am nt sure of dividend POLICY.

But as for dividend payout ratio, 2004/2005/206/2007 = >50% of net profit and FCF.

But 2008/2009 was <50% of net profit and FCF.

just realized i have some homework to do on my spreadsheet for 2010....

confirmed my spreadsheet information with below:
http://www.vicom.com.sg/financialreport/2010/ar10-3.pdf

[Nick]

i am sorry, i am nt sure of dividend POLICY.

But as for dividend payout ratio, 2004/2005/206/2007 = >50% of net profit and FCF.

But 2008/2009 was <50% of net profit and FCF.

just realized i have some homework to do on my spreadsheet for 2010....

confirmed my spreadsheet information with below:
http://www.vicom.com.sg/financialreport/2010/ar10-3.pdf

EPS in 2008 was 18.5 cents while dividend was 9.25 cents. Payout ratio was 50%.

Report - http://www.vicom.com.sg/financialreport/...FY2008.pdf

Earnings: $15.794 million
Dividends: $7.908 million
Payout Ratio: 50.06%

Together with the tax-exempt one-tier interim dividend of 6.3 cents per share paid earlier, the total dividend payout for the year amounts to 16.1 cents, representing about 62.7% of the Group’s profit after tax. It is more than our declared dividend policy of 50.0% and also better than the last financial year. [AR 2010]

Hope this helps

(Vested)

[Qiaofeng]

EPS in 2008 was 18.5 cents while dividend was 9.25 cents. Payout ratio was 50%.

Report - http://www.vicom.com.sg/financialreport/...FY2008.pdf

Earnings: $15.794 million
Dividends: $7.908 million
Payout Ratio: 50.06%

Together with the tax-exempt one-tier interim dividend of 6.3 cents per share paid earlier, the total dividend payout for the year amounts to 16.1 cents, representing about 62.7% of the Group’s profit after tax. It is more than our declared dividend policy of 50.0% and also better than the last financial year. [AR 2010]

Hope this helps

(Vested)

Thks, Looks like 50% divd payout for the moment and trying very hard to diversify and expand the testing services SETSCO with capex spend for that in 2011.

I crunched some numbers.....
LTA's Singapore Figures
Yr...........Vehicles.................Vehicles inspected..... Vicom Insp
2004.........727,395......................433,260..................12.1m
2010.........945,829......................621,889..................25.5m

Increase in Vicom's revenues over the years is due to Govt's policy of increasing the population of vehicles and the legislation requiring Vehicle Inspection and diesel smoke testing etc.

Question
Will car population shrink henceforth, given the huge sums spend on DTL, CTE, EW and Circle lines to link up almost entire Sg?

http://www.stai.com.sg/services01.html
http://www.vicom.com.sg/inspectionprice.htm
http://www.lta.gov.sg/corp_info/doc/MVP0...0type).pdf
http://www.lta.gov.sg/corp_info/doc/MVP0...20age).pdf
http://www.lta.gov.sg/corp_info/doc/MVP0...0Insp).pdf

Method 1
Estimate of Vehicle Inspection revenues in whole Sg mkt 2010
Cars -----239K x 58 (93% pass) + 16.7K x 29 = 14.35m
M/c -------- 116K x 17 (93% pass) + 8.1K x 9 = 2.05m
Public buses------------4.8K x 68 (93% pass) + 0.34K x 34 = 0.34m
Other buses ------------15.5K x 68 + 3K x 34 (80% pass) = 1.16m
Taxis ---------------------48.7K x 58 (99% pass) + 0.49 x 29 = 2.84m
Goods &--------------------197.4K x 68 ( 84% pass) + 31.6K x 34 = 14.50m
Other
Vehicles
Total-----------------------------------35.24m
Add SGD1m for repeat and CDST tests--------36.2m


Vicom's share of revenues
Segmental Revenues for vehicle testing SGD 25,519,000
% mkt share by revenues--------------25.52/36.2 =70.5%


Method 2
Vicom's Reported share by numbers
2005----------------300,000 out of 428873---------70% mkt share
2006----------------335890 out of 459155--------73.15% mkt share
2007----------------339190 out of 474800-----------71.4% mkt share
2008----------------376393 out of 530894------------70.9% mkt share
2009----------------397717 out of 566358------------70.2% mkt share
2010----------------438,454 out of 6 21,889-------- 70.5% mkt share

Vicom's share of revenues corresponds using Method 1 or Method 2

My Thots.....
1) Great monopolistic type biz with good moat.
2) By having 2 out of 9 vehicle testing centre, Vicom should have 7/9 or 78% mkt share; but has 70.5% actual.
3) Vicom's mkt share peaked at 73.15% (2006) but has been dropping ever since. STA appears to be a strong competitor in service terms for the vehicle inspection biz, but lose out on island wide coverage.
4) With the LTA capping vehicle growth to 1.0% for 2012 and then 0.5% for 2013 and 2014. The intention seem to be to let the MRT grow and to decrease vehicle growth. Will the numbers go negative? IMHO, possible!!
http://www.lta.gov.sg/corp_info/index_corp_press.htm
5) Cars & Goods vehicles contributes most to the vehicle inspection biz. So going forwards, car population (39.6%) will likely decrease but not Goods vehicles (40%); which will become the mainstay.
6) Liquidity of the Vicom shares is low.

[FFNow]

Thanks for the detailed analysis! Very useful. I will look into it when I'm free.

[Qiaofeng]

Thanks for the detailed analysis! Very useful. I will look into it when I'm free.

Hope U can do a similar one for SETSCO?