VICOM

[kazukirai]

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

On this point, and I think it's been debated here before, the capping of vehicle population growth might actually be a positive for Vehicle Testing.

Cap Growth > Higher COE > Older cars > More cars being required to go for testing since cars older than 3 yrs are required to go for testing.

Of course, the devil's in the details as to how much of a positive impact this is for Vicom.

As to when the growth nos. go negative, COEs have a life of 10 years, given the huge increase in vehicle population in recent years, that means that for vehicle growth to go negative, that may take quite some time to play out.

[Musicwhiz]

On this point, and I think it's been debated here before, the capping of vehicle population growth might actually be a positive for Vehicle Testing.

Cap Growth > Higher COE > Older cars > More cars being required to go for testing since cars older than 3 yrs are required to go for testing.

Of course, the devil's in the details as to how much of a positive impact this is for Vicom.

As to when the growth nos. go negative, COEs have a life of 10 years, given the huge increase in vehicle population in recent years, that means that for vehicle growth to go negative, that may take quite some time to play out.

Hi Kazukirai,

Thanks for your inputs!

Let's wait for November 10, 2011 for VICOM's 3Q 2011 results.

[Qiaofeng]

On this point, and I think it's been debated here before, the capping of vehicle population growth might actually be a positive for Vehicle Testing.

Cap Growth > Higher COE > Older cars > More cars being required to go for testing since cars older than 3 yrs are required to go for testing.
Of course, the devil's in the details as to how much of a positive impact this is for Vicom.

As to when the growth nos. go negative, COEs have a life of 10 years, given the huge increase in vehicle population in recent years, that means that for vehicle growth to go negative, that may take quite some time to play out.

Is the assumption in bold true?
Method 1
Look at Car age distribution.
http://www.lta.gov.sg/corp_info/doc/MVP0...20age).pdf

Of late, the age distribution of vehicles follow something like a log normal distribution (tail limited to 10yrs) with high concentration of the population below the age of 4yrs and the tail with very small % of older cars.

Look at the passing rate of cars on 1st inspection.... http://www.lta.gov.sg/corp_info/doc/MVP0...0Insp).pdf
U can see that the most numbers of cars tested is in the 3rd yr, followed by 5th, followed by 7th yr.

So when U raise COE prices by cutting Car popn growth, what happens is that, U are pushing towards a tail with very little numbers of cars and that requires inspection only in alternate years.
Becos of this the catch is very small in % terms.

So logically, as cif, has pointed out, what really is advantageous to Vicom is a high population of cars rather than a rapidly declining small pool of aging cars

Method 2
Year.......COE..........Age........Vehicles.......Cars.......Goods
............. Prices......<3yrs.......Tested.....................Vehicles
..............Open.....
..............Cat
2000.......33-48K....34.8%....464,636......179,285.....142,369
2001.......27-34K....40.3%....463,227......163,596.....156,730
2002.......27-42K....44.3%....453,589......157,763.....158,298
2003.......24-33K....51.8%....456,389......164,183.....152,117
2004.......21-28K....57.2%....433,260......142,537.....149,772
2005.......13-19K....64.9%....428,873......126,944.....150,829
2006.......10-15K....67.5%....459,155......137,220.....159,795
2007.......12-18K....64.5%....474,800......141,994.....167,531
2008........6-18K....58.1%.....530,894......173,031.....181,737
2009........3-20K....47.1%.....566,358......198,139.....189,663
2010.......22-76K....34.8%.....621,889......239,124....197,369
2011.......56-73K

I have chosen Open Cat COE as they are the most expensive & volatile.
The actual figures show that when COE was lowest as in 2008 and 2009, the number of vehicles tested was high, Cars tested was also high.
In fact, from 2000 to 2009, the COE was on a trend of declines, yet, the number of vehicles tested kept increasing.

What caused the increase in total vehicles tested?
It is the growth in Car popn.
Car popn increased from 392,961 in 2000 to 595,185 in 2010 i.e Overall growth of 51% over 10 yr or CAGR of 4.4%
Goods vehicles popn increased from 124,854 in 2000 to 143,613 in 2010 i.e. Overall growth of 15% over 10 yr or CAGR of 1.5%.
So Car popn was growing at 3 times the rate of Goods vehicles growth in CAGR terms.

So as I have shown, the Goods vehicles section will be the mainstay of the biz, if the policymakers decide to curb car popn growth and divert resources to the rail network such as the DTL and CCL.

The thinking previously was this.......
Singaporeans aspire to own cars.
Govt allow Singaporeans to own cars but will curb car usage using ERP.
But, with increasing numbers of vehicles on the roads, ERP charges were levied in the evenings (not just daytime) and maybe even weekends, whole day (in future). Singaporeans are getting unhappy with paying such charges and at the same time complaining of the squeeze on MRTs.
Govt has to divert resources to quicken the pace for MRT systems.
But Sg is so small, more MRT means IMHO less room for more roads. So car popn must stabilise at best or decline --- if the policymakers decide to push commuters towards the vast MRTs systems built at large public expense i.e. make SMRT and SBS Transit profitable so that they will not raise fares.
My 1cGibberish
http://www.lta.gov.sg/corp_info/doc/MVP0...0type).pdf

[kazukirai]

Hi QF,

Ok, thanks for pointing out. I realised that there was some flaw in my train of thought. After all, COE quotas are dependent on number of cars scrapped which in turn affects COE prices which in turn affects the decision to scrap cars.

Therefore, with high COE prices, we might see the bulk car population age shift from 1-10 years to 3-12 years; therefore it is the Car Population growth rates which matters. And since LTA has explicitly set a target then I suppose this is what can expect.

However, I'm still not convinced that car population growth rates will turn negative due to the huge infrastructure investments in public transportation.

After all, aren't all these dependent on the number of people on this island? And if economic growth slows...I'm not sure the govt has that many tricks in its playbook.

[Qiaofeng]

However, I'm still not convinced that car population growth rates will turn negative due to the huge infrastructure investments in public transportation.

After all, aren't all these dependent on the number of people on this island? And if economic growth slows...I'm not sure the govt has that many tricks in its playbook.

See
http://www.valuebuddies.com/thread-117-page-7.html Post #69.

Append here…
http://www.singstat.gov.sg/stats/themes/.../popn.html
http://www.singstat.gov.sg/stats/charts/popn-area.html
Yr………....2005…..…2006…….2007……….2008…….2009………2010…….2011
RP……….…3467.8.…3525.9….3583.1……3642.7….3733.9…..3771.7…..3789.3
RP- Resident Popn
DelRP - change in % of RP

Yr2/Yr1………...06/05……07/06…..…08/07…..…09/08…..….10/09……...11/10
DelRP……….…..1.7%…….1.6%........1.7%........2.5%.......1.0%.........0.5%

U will see that, DelRP change in Resident Popn is declining for 11/10 (i.e. Year 2011 vs 2010).
This is a logical outcome given voters unhappiness at the recent GE.
So if U are looking at higher Resident popn to drive Car popn, that may not happen as the Resident popn itself is peaking.

In many ways SPH and Vicom has similarities. Both are monopolistic bizs created out of legislation ---- as some may say gifted by the whims of the “gods”. So when policymakers shift to adapt to changing situations, the legislation may change. Such are the vagaries of investment moats created out of legislative barriers as opposed to true competitive barriers!! 3-4 yrs down the road, Vicom must make the Testing biz, a core biz with recurrently high margins. For this reason, I will be much obliged, if someone more knowledgeable in the testing biz can give some segmental analysis on that part of the biz.

Ah…. But all these are IFs at the moment; fictitious clouds in the air weaved by Qiaofeng’s Musing!!!

[kazukirai]

Yr2/Yr1………...06/05……07/06…..…08/07…..…09/08…..….10/09……...11/10
DelRP……….…..1.7%…….1.6%........1.7%........2.5%.......1.0%.........0.5%

This is a logical outcome given voters unhappiness at the recent GE.
So if U are looking at higher Resident popn to drive Car popn, that may not happen as the Resident popn itself is peaking.

Actually, your data (kind of, since it's only 1 data pt) shows the trick that I was talking about- namely that if the economy sours, the govt will turn to their bag of tricks to boost GDP (2 guys with $8 of output each still beats 1 guy with $10 bucks of output). And, 2016 is a long way off so whether they use new tricks or old ones is anybody's guess.

Also, since LTA has set an explicit target for vehicle population growth, I don't think we need to second-guess how they're going to do it i.e. by allowing more people in or otherwise- they can always goose things by tweaking the COE quota formula if demand falls.

IMO, still ok to assume that vehicle population growth will be tepid but not negative.

[yan]

Hi, I was looking at Vicom's 2010 AR, and on pg 71, footnote 19, under profit after taxation, there are a bunch of charges that adds up to 320. I cannot find where they fit it in the income statement. Does that go into "other operating expenses"? Would be great if someone could advise. Thank you.

[Qiaofeng]

1) if the economy sours, the govt will turn to their bag of tricks to boost GDP (2 guys with $8 of output each still beats 1 guy with $10 bucks of output).

2)LTA has set an explicit target for vehicle population growth

For 1) ----- I get what you are alluding to. But, given the political costs of "opening the flood gates" again; we can discount increasing resident popn as one of the tricks.


For 2) ------ see 14/10/2011 LTA Press release:-

Lower Vehicle Growth Rate for Next 3 Quota Years (2012-2014)

1. The Land Transport Authority (LTA) has completed its vehicle growth rate review. The annual vehicle population growth rate will be lowered from the current 1.5% to 1.0% in 2012, and then to 0.5% in 2013 and 2014. For 2012, the 1% p.a. growth will be front-loaded, with the current 1.5% p.a. growth rate maintained for the first half of the quota year (February 2012 to July 2012), followed by 0.5% p.a. growth rate for the remaining half of the quota year (August 2012 to January 2013). Overall, the growth rate for the new 3-year quota period is therefore 1.5% p.a. for the first 6 months, followed by 0.5% p.a. growth rate for the remaining 2.5 years.

2. The current annual vehicle population growth rate of 1.5% has outstripped the average annual road growth of about 1% in recent years. As road growth is expected to slow down to about 0.5% p.a. on average over the next decade, it is not sustainable to maintain the vehicle growth rate at 1.5%. The lower vehicle growth rate will be more closely aligned to the pace of road growth going forward.

3. The lower vehicle growth rate is not expected to have a large impact on the COE supply in the next few years, especially in the context of an expected uptrend in vehicle de-registration numbers.

3 Points to note

Point 1 .....
0.5% vehicle growth for the next 2.5yrs.
It did not say "cars" but "vehicle" ; implying "total vehicles".
If we take "total vehicles" includes all------cars, good vehicles, bus, motorcycles etc.

http://www.lta.gov.sg/corp_info/doc/MVP0...0type).pdf

Total vehicles popn in ...
2010........945,829
2000........692,807
Total vehicles growth from 2000 to 2010 36.52%; implying CAGR 3.1%.

If LTA cuts it down to 0.5%.
Car popn have to shrink, if Buses,Goods Vehicle & others etc stays positive.
Car popn in last decade increased by CAGR 4.4% and Goods vehicle by 1.5%.

Point 2 .....
For the next decade, given land supply constraint, road growth can only come from expensive tunneling underground or tiered roads.
Mass rapid transit rail will compete with roads for further growth on limited land.
Constraints on road growth will constraint vehicle growth.


Point 3....
Having spent vast sums of public monies on the MRT rail infrastructure, they cannot allow the system to be under-utilised
i.e. become a white elephant. remember Buangkok station?
They have to push up usage rates. Guess how they will do it....

[weijian]

i think it is pretty obvious that there is limited growth prospects in the vehicular inspection biz at VICOM, no matter how many ways you look at the data. This limited growth is offset by the Spore gov's explict grant of monopolisation - you wouldn't grow in exchange for stable cash flow generation..

I think if one wants to look for growth, they should focus on dissecting the non-vehicular part of the inspection biz, where the gov intervention is not so tight.

Just my 2 cents worthed

[kazukirai]

3 Points to note

Point 1 .....
0.5% vehicle growth for the next 2.5yrs.
It did not say "cars" but "vehicle" ; implying "total vehicles".
If we take "total vehicles" includes all------cars, good vehicles, bus, motorcycles etc.

If LTA cuts it down to 0.5%.
Car popn have to shrink, if Buses,Goods Vehicle & others etc stays positive.
Car popn in last decade increased by CAGR 4.4% and Goods vehicle by 1.5%.

Hi QF,

Point taken. Thanks!