VICOM

[Qiaofeng]

1) 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.

2) 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..

3) 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.

Statement 2)
I find this to be a very bold statement. I did not not know that the Sg govt had actually made an explicit statement of intent to grant monopolisation to Vicom--- in exchange for stable cashflow generation.
This, if true is a gamechanger!!
Could you cite an official pronouncement from LTA or the Transport Ministry?
I was actually concerned that the monopoly is subject to the vagaries of policies ---- in other words this lack of certainty aka gift-nature, explains the lack of new entrants. Becos they think that if legislation for this is not iron clad, it is not a sustainable & durable core biz and hence for STA and for Vicom there is need and hurry to find alternatives such as the testing services biz.

Statement 1)
Ironically, for me, the "lure" for me to investigate and research the Vicom biz model , as a prelude to actual investment, was the high growth in operating margins which I traced to the high growth vehicle inspections which came from the high growth in the number of Cars on th roads in the last decade.
So I crunched the historical data to investigate the root cause for the growth in the vehicle inspections which vaildated my "feel' that the growth was due to the huge % increase in Car popn , in the past decade.
I had hoped that this trend will continue.
The 14/10/2011 LTA Press release was the stumbling block, that made me wonder about grwoth in future years.

Statement 3)
For the Testing Services biz, is it true that the testing services are not driven by legislation?
I know zero about this biz.
Perhaps, some others can throw some light.

[weijian]

QF,
Sorry for the misunderstanding. For (2), i used the wrong word! i meant 'implicit'! haha...I had to check up the dictionary to find out that i was using the wrong word!
I suspect as long as Temasek continues to be a majority shareholder at ComfortDelgro, it will nv let this cash cow run out of milk!

For (1), I have once done the spreadsheet analysis from 2004-2010. ( i stopped since then because its price just went out of my buying range) The operating profit margins clearly showed a step jump from 29-31% (2004-2007) to ~38% (2009-2010). I concluded this to be coming from non vehicular testing due to the construction boom from the IR. It is also during this time, that VICOM stock price started to rocket up....

For (3), i used to work in a company that had to send our measuring instruments (thermometer, voltmeter etc) to SETSCO for yearly calibration/certification. I was pretty sure that we could switch our supplier (to another accredited one) if we wanted.

[brattzz]

SETSCO is construction & transport engineering driven..

testing of concretes, steel and such...

[Qiaofeng]

QF,
Sorry for the misunderstanding. For (2), i used the wrong word! i meant 'implicit'! haha...I had to check up the dictionary to find out that i was using the wrong word!
I suspect as long as Temasek continues to be a majority shareholder at ComfortDelgro, it will nv let this cash cow run out of milk! Bold One

For (1), I have once done the spreadsheet analysis from 2004-2010. ( i stopped since then because its price just went out of my buying range) The operating profit margins clearly showed a step jump from 29-31% (2004-2007) to ~38% (2009-2010). I concluded this to be coming from non vehicular testing due to the construction boom from the IR. Bold Two . It is also during this time, that VICOM stock price started to rocket up....

For (3), Bold Three i used to work in a company that had to send our measuring instruments (thermometer, voltmeter etc) to SETSCO for yearly calibration/certification. I was pretty sure that we could switch our supplier (to another accredited one) if we wanted.

Hi,

Bold One ---- is an assumption. Temasek and LTA are quite seperate entities.

Bold Two
U may want to check Ur f(x) in Ur excel spreadsheet.

Segmental Operating Margins
Yr.......................................2005*................2010**
Vehicle Insp (Core).................22.8%................35%
Testing Services (add) ..........11.9%.................18.4%
Overall..................................22.6%..............31.5%
* as per AR 2005
http://www.vicom.com.sg/financialreport/2006/extr13.pdf
** as per AR 2010
http://www.vicom.com.sg/financialreport/...r10-12.pdf
Adding a lower operating margin segmental biz to a core biz that has much higher operating margins will pull down the overall operating margins. Not lift those margins.

Bold Three
Measuring Instruments are probably calibrated on a term basis as recommended by guidelines OR required by law?
Testing of concrete, steel from construction sites will likely be dependent on the level of construction activity/demand.
NDTs (Non Destructive tests) and evaluations will probably give better value add.

[weijian]

hi QF,
Thanks for the investigation.

For bold1 --> Yes, it is an assumption based on the fact everyone are subsidiaries of this company called Spore Inc... In investing, ain't we all making assumptions based on observations or facts?

For bold2 --> What i meant, is that i concluded OVERALL VICOM margins improved mainly because there was a BIGGER improvement in margins coming from SETSCO (Compared to previous years). Here's the illustrate what i meant (hope it clarifies):
Operating margins:
----------vehicle---non-vehicle
2008-------31%-------12%----
2009-------35%-------18%----
2010-------37%-------19%----

For SETSCO, OP increased by 7% (which is 7/12 ~ 50% improvement)
For vehicle testing, OP increased by 6% (which is 6/31 = 20% improvement).

(P.S. i have not updated my VICOM spreadsheet for almost a year now)

For bold3 --> It is an ISO requirement for the measuring instrument to undergo calibration based on the terms stated.

[Qiaofeng]

hi QF,
Thanks for the investigation.

For bold1 --> Yes, it is an assumption based on the fact everyone are subsidiaries of this company called Spore Inc... In investing, ain't we all making assumptions based on observations or facts?

For bold2 --> What i meant, is that i concluded OVERALL VICOM margins improved mainly because there was a BIGGER improvement in margins coming from SETSCO (Compared to previous years). Here's the illustrate what i meant (hope it clarifies):
Operating margins:
----------vehicle---non-vehicle
2008-------31%-------12%----
2009-------35%-------18%----
2010-------37%-------19%----

For SETSCO, OP increased by 7% (which is 7/12 ~ 50% improvement)
For vehicle testing, OP increased by 6% (which is 6/31 = 20% improvement).

(P.S. i have not updated my VICOM spreadsheet for almost a year now)

For bold3 --> It is an ISO requirement for the measuring instrument to undergo calibration based on the terms stated.

Bold One
I guess I am not smart enuff to understand this.
An assumption based on facts.
If something is factual, do U need to make assumptions?

Bold Two
Add the last column, Overall operating margins!!
--- the effect of the additional segmental biz (non vehicle test services) operating margins to the Core biz operating margins of vehicle inspection becomes clear.

Operating margins:
----------vehicle---non-vehicle..... Overall
2008-------31.3%-------12.7%-----26.9%
2009-------35.9%-------18.4%-----31.5%
2010-------37.4%-------19.1%-----32.0%

For Ur logic, From 2009 to 2010,
"vehicle" increased by 1.5%, "non-vehicle" improved by 0.7%, so which biz contributed more to the increase of 0.5% for "Overall"?

Again, I am not able to understand this.

Bold Three
Thks

[Drizzt]

this means that likely volume from non vehicle is much higher isn't it? else how can we achieve higher growth due to non vehicle?

[weijian]

hi QF,

For bold1 = An assumption can be made based on observations. Facts that happen in the past, u still need to make an assumption that it will persist in the future. What you think may be a fact, may not be a fact after all..

For bold2 = I did not make a comment on YoY. Instead, it was period to period (2004-2007 vs 2009-2010). But to answer your specific YoY qn, it wld be vehicle testing.

[Qiaofeng]

hi QF,

For bold1 = An assumption can be made based on observations. Facts that happen in the past, u still need to make an assumption that it will persist in the future. What you think may be a fact, may not be a fact after all..

For bold2 = I did not make a comment on YoY. Instead, it was period to period (2004-2007 vs 2009-2010). But to answer your specific YoY qn, it wld be vehicle testing.

Bold 1
I now understand the big gulf in our opinions.

To me, "improving Overall Operating margins" is an assumption that needed validation.
To you "improving Overall Operating margins" is a fact !!
To you, "Temasek as a majority shareholder of CD will ensure Vicom remain as a FCF biz " is a fact.
To me "Temasek and LTA are different entities" and their aims may not necessarily align, at the same time.
Accordingly, to U----

"u still need to make an assumption that it will persist in the future"
U further argue that this fact may not be a fact afterall?

The ambiguity is in terms of reference.
Until, U get it sorted out; this discussion is meaningless and will get us nowhere---in a way it is like the meaning of explicit and implicit. Until we both know and agree on what the terms mean we will be "cross-talking", for all good intentions & purposes.

I had set out to study the trend in vehicle popn; in order to test and check out the assumption ---- whether Vicom's past trend of improving Overall Operating margins can continue.
But, 1st , I needed to find out what caused the Overall Operating margins to increase---- which turned out to be the huge 51.5 % increase in Car popn (from 392,961 in 2000 to 595,185 in 2010).
My investigations led me to conclude that Car popn is going to decline henceforth; altho, vehicle popn will be at 0.5% growth for the next 2.5yr.
So I concluded that unless SETSCO operating margins (Not just revenues which already far exceed vehicle testing biz revenues) increase to a level that is close to the Vehicle testing biz, the Overall Operating margins are in danger of falling.


Bold 2
Again terms of reference....
To me a year is a period.
a series of years is also a period.
To U, a year is NOT a period.
a series of years is a period.

I think I have stated my points clearly.

Henceforth, I hope further discussion should be on SETSCO.
We are wasting bandwidth on the vehicle testing biz, if we cannot even agree on the terms of reference.

[Qiaofeng]

this means that likely volume from non vehicle is much higher isn't it? else how can we achieve higher growth due to non vehicle?

Higher Overall Op margins, possible only if :
SETSCO achieves higher Op margins x higher turnover; than current numbers
can it compensate for Vehicle inspection drop in turnover and Vehicle inspection drop in Op margins (due to decreasing car numbers using the same 7 test facilities).