VICOM

[cif5000]

I'll stick to vehicle inspection as that's what VICOM stands for.

1. The higher the number of vehicles on the road, the more business VICOM will have. Right now, vehicle number growth is regulated to prevent more vehicles on the road. That means, the demand is actually higher. There will be more vehicles on the road if not for the government control. But since growth rate is control to be a positive number, there will be more vehicles on the road.

2. The inspection frequency for "Cars" is the lowest compared to the others (goods vehicles, bus, taxi). E.g cars are required to be inspected biennially from 3 year old onwards, whereas the others could start from day one and inspected 6-mthly or yearly.

3. Therefore, if the total number of vehicles are growing and number of "Cars" are declining, that means the total number of inspection will increase at a rate higher than vehicle growth.

[Qiaofeng]

I'll stick to vehicle inspection as that's what VICOM stands for.

1. The higher the number of vehicles on the road, the more business VICOM will have. Right now, vehicle number growth is regulated to prevent more vehicles on the road. That means, the demand is actually higher. There will be more vehicles on the road if not for the government control. But since growth rate is control to be a positive number, there will be more vehicles on the road.

2. The inspection frequency for "Cars" is the lowest compared to the others (goods vehicles, bus, taxi). E.g cars are required to be inspected biennially from 3 year old onwards, whereas the others could start from day one and inspected 6-mthly or yearly.

3. Therefore, if the total number of vehicles are growing and number of "Cars" are declining, that means the total number of inspection will increase at a rate higher than vehicle growth.

Makes alot of sense.
Sound and logical reasoning, with 3 provisos:
1) Overall vehicle growth stays positive.
2) Operating margins do not drop even as efficiency drops due to the drop in car popn, baccompanied by continued rising operating costs (labour, chiefly).
3) Given the 0.5% tepid Overall vehicle growthset by LTA; the increase in vehicles could come either from private OR public, such as buses ---- for private buses the fees charged are transparent according to Schedule of Fees, for public buses such as those from SBS Transit, a subsidary of Comfort Delgro, I wonder if & suspect that they do get discounted rates (which will lower margins) due to the IPT nature, as well as bulk/wholesale nature of the biz. This will lower margins.

For underlined, the irony in Sg is that demand is "controlled"----real demand is much higher than that allowed if there are no market interventions and there is no guarantee that vehicle growth will be allowed to stay positive. Hence, the uncertainty and pessimism.


I am actually looking forward to figures showing Op margins growth from SETSCO, which I understand has been spending Capex, in pursuit of growth and hopefully, efficiency. But, the nature of the biz model is fuzzy and difficult to understand to a layman/investor, like me. So maybe, those close to the IR, may like to get more info on the nature of the biz.

[Qiaofeng]

Singapore
November 18, 2011, 2.18 pm (Singapore time)

Car loan contract 2.6% y-oy in Q3 2011: MAS
By ANGELA TAN


Car loan growth has been negative since Q2 2009, in line with falling car sales as the Land Transport Authority (LTA) reduced COE quotas.


The Monetary Authority of Singapore in its annual Financial Stability Review on Friday that car loan contracted by 2.6% y-o-y in Q3 2011.

BT

________________

My Thots....
Evidence of the decreasing Car popn, we have discussed in this thread.

[shanrui_91]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

[shanrui_91]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

[Musicwhiz]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

Thanks for this, I've looked at your analysis and it's detailed, with supporting numbers and tables. Kudos for that!

So, your conclusion from Part 2A is that VICOM's revenues are affected not just by vehicle growth rate (i.e. larger population of vehicles); but also the age profile of the vehicles? From my understanding, this should be the case because older vehicles need more frequent inspections, and for cars it is a very lucrative business indeed. But that's assuming people do not scrap their cars and switch to public transport instead, which would a) shrink the pool of cars on the roads and b) lower the age profile of the remaining cars (more new cars versus old cars). It remains to be seen if this will happen once August 2012 comes along and the vehicle allowable growth rate shrinks further to 0.5%.

Looking forward to Part 2B! Will you be analyzing the effects and potential of VICOM's non-vehicle inspection business? Thanks.

[shanrui_91]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

Thanks for this, I've looked at your analysis and it's detailed, with supporting numbers and tables. Kudos for that!

So, your conclusion from Part 2A is that VICOM's revenues are affected not just by vehicle growth rate (i.e. larger population of vehicles); but also the age profile of the vehicles? From my understanding, this should be the case because older vehicles need more frequent inspections, and for cars it is a very lucrative business indeed. But that's assuming people do not scrap their cars and switch to public transport instead, which would a) shrink the pool of cars on the roads and b) lower the age profile of the remaining cars (more new cars versus old cars). It remains to be seen if this will happen once August 2012 comes along and the vehicle allowable growth rate shrinks further to 0.5%.

Looking forward to Part 2B! Will you be analyzing the effects and potential of VICOM's non-vehicle inspection business? Thanks.

Musicwhiz, in fact i have to thank you for this. I got my inspiration for doing the report from you as I have been following your blog for quite some while. When you said that you do not wish to continue blogging, i decided that maybe its time for me to try it out.

And Yes, my conclusion is that a larger population and age distribution will affect the revenue. But in fact the age distribution plays a bigger role if you do the math. However, the differences in the two numbers are that age distribution determines the maximum number of cars being inspected(which i believe to peak by 2013) while growth rate is the one that will be able to increase the revenue in the long run.

And here is how supply of COE is being determined.
Number of COE of below 1600cc car given out in a year = 0.5% * Current Vehicle Population of below 1600cc car + Number of Vehicle deregistered during the year.

So long as COE prices stay above $1, it means that there are more people wanting to buy a car than there are enough COE. Personally, i do not feel that much will switch from car to public transport though i really dislike the idea of owning a car. I have seen people who are in debt that they need to borrow from people just to survive but who are still not willing to sell their car. To them, it has become a habit that's very hard to change. Another aggravating factor will be the continuous growing population and GDP growth, this will increase the number who can afford car.

And I will be analysing SETSCO in Part 3 followed by a conclusion in Part 4 summarizing all the arguments.

[dzwm87]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

Hey shanrui_91, great post! and encouraged to see it coming from someone so young as you! Got difficult to see common young peeps who are more interested in fundamentals.

Anyway, just a question: looking at their F11 3Q results, forward annualised earnings will yield VICOM a PER of around 12.9x (at a last done price of $3.58). No doubt, the business fundamental is indeed strong - you only witness a short dip in price during the recent bearish conditions. Yet overall, price has been on the surge consistently over the years.

Not sure where you are coming from for this stock - is it more of value or a growth stock? IMO, at 12x P/E, it's pretty much a rule-of-thumb fair valuation for SGX stocks. I'll see it more as a pure-growth stocks.

Also, not sure if you will be adding a post on VICOM business but it will be good to compile a brief summary on their business - customers, suppliers, competitors, etc. That framework has helped me a lot and it has really put things into better perspective.

*not vested*

[shanrui_91]

I have done a partial and ongoing analysis on VICOM on my blog, please have a look and all comments will be appreciated.

http://sgyounginvestor.blogspot.com/

Hey shanrui_91, great post! and encouraged to see it coming from someone so young as you! Got difficult to see common young peeps who are more interested in fundamentals.

Anyway, just a question: looking at their F11 3Q results, forward annualised earnings will yield VICOM a PER of around 12.9x (at a last done price of $3.58). No doubt, the business fundamental is indeed strong - you only witness a short dip in price during the recent bearish conditions. Yet overall, price has been on the surge consistently over the years.

Not sure where you are coming from for this stock - is it more of value or a growth stock? IMO, at 12x P/E, it's pretty much a rule-of-thumb fair valuation for SGX stocks. I'll see it more as a pure-growth stocks.

Also, not sure if you will be adding a post on VICOM business but it will be good to compile a brief summary on their business - customers, suppliers, competitors, etc. That framework has helped me a lot and it has really put things into better perspective.

*not vested*

Though i initiate a coverage at 3.61, i have to admit I got it at an average price of 3.40. To me it is not really about pure growth or value. As Buffett said "And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices" (his comment on trying to revitalise the old Bershire Hathaway's business). My investment philosophy is to buy company with great business model and further confirmed with financial statement analysis.

My post 2a is on the customers, while post 2b will be on competitors. There's no supplier as it sells a service and not a product. My last post will be to summarize and conclude why i think it is a buy.

Update: Part 2B is out

[shanrui_91]

Part 3A is out though there's some formatting problem

http://sgyounginvestor.blogspot.com/