VICOM

[yeokiwi]

If you look at COE supply over time, it is cyclical. And we are at peak or past peak.

http://www.lta.gov.sg/content/dam/ltaweb...3M-Age.pdf
http://www.lta.gov.sg/content/dam/ltaweb...h_Insp.pdf

From the data so far, the best is yet to be (at least for another year....)

Looking at the data. The best way for Vicom to increase profits without increasing fee is to tighten 1st inspection to fail people. Hahahaa..

A friend told me that if the 1st inspection fail, you just need to rectify the failed areas and go back for a 2nd inspection on the same day, and it will be FOC. Can anyone confirm this? The guy who told me this is driving a commercial van, so not sure if the same apply to pte vehicles.

Never gotten into such situation yet. But 2nd inspection is half the price.
Although I did hear rumors of some monkey transactions between inspectors and owners of heavily modded cars to allow their modded car to pass inspection.

This car inspection business is really low cost, low labor, low tech but high barrier of entry... funny.

[CityFarmer]

A friend told me that if the 1st inspection fail, you just need to rectify the failed areas and go back for a 2nd inspection on the same day, and it will be FOC. Can anyone confirm this? The guy who told me this is driving a commercial van, so not sure if the same apply to pte vehicles.

I did once on my previous old private car. After the inspection in the morning, some tests failed (IIRC, it is the tyre alignment). I was told to seek alignment from workshop nearby. It was free for 2nd inspection, if done within the same day, and with the receipt. I did it and passed in the 2nd inspection FOC.

[shanrui_91]

There is this misunderstanding that I've seen in people analysing this stock. Before a new car is allowed on the road, it must pass an inspection. Car owners don't see that because it's done before the car is handed over.

At the end of Year 3, the car has to be inspected before the road tax for Year 4 can be issued.

So here we have 2 inspections over a span of ~36 months. I don't see how that is inferior to a biennially inspection (1 every 24 months) from Vicom's perspective.

Here's the table for inspection.

Inspection has to be performed before the end of
Year 0; Year 3; Year 5; Year 7; Year 9

As you can see, new cars are inspected in advance. i.e. the inspection which was supposed to happened in Year 1 actually took place earlier. If anything, new cars are better businesses for Vicom.

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

What we should be worried is a repeat of 2005. here's the chairman statement in 2005 :

"Demand for vehicle inspections has fallen as more cars were deregistered during the year. This is because Certificate of Entitlement (COE) prices for cars have dropped by as much as 30%, prompting
car owners to replace their old cars for new. In fact, COE prices hit an all-time low in December 2005 when certificates for Category B cars went for $9,001 compared to the record high of $110,500 slightly more than a decade ago."

   
As seen from the above chart, % of car undergoing inspection and % of cars deregistered seems to have negative correlation. What VICOM did back then is to raise the inspection fee by $1 to $3 as well as to acquire additional stake in JIC Inspection. This allows them to avoid a fall in revenue.

Will VICOM be able to raise the price again should the unfortunate happen? Likely since they have not done so for quite some time. However, if the % of cars undergoing inspection falls back to 2005 level of 30%, the drop in revenue cannot be avoided. Cars inspection accounts for 40-50% of total vehicle inspection revenue while Goods & Other Vehicles inspection accounting for 30-35%. These 2 type of vehicles should be closely watched.

Car population grows by 53% from 2003 to 2013 while car inspection figure grows by 78%. If deregistration rate does not play a part in driving the vehicle inspection revenue for VICOM, what else is? Notice how most of their annual reports focus more on deregistration rate as compared to vehicle population growth rate.

Then again, there is SETSCO which has done reasonably well over the years and might be able to grow sufficiently to mitigate the risk of vehicle inspection.

Caveat Emptor

(vested)

[cif5000]

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

You are right.

"For authorised motor dealers, once the model of the car has been approved, subsequent imported units of the same model need not be inspected."

http://www.onemotoring.com.sg/publish/on...mp/Car.pdf

[lester]

There is this misunderstanding that I've seen in people analysing this stock. Before a new car is allowed on the road, it must pass an inspection. Car owners don't see that because it's done before the car is handed over.

At the end of Year 3, the car has to be inspected before the road tax for Year 4 can be issued.

So here we have 2 inspections over a span of ~36 months. I don't see how that is inferior to a biennially inspection (1 every 24 months) from Vicom's perspective.

Here's the table for inspection.

Inspection has to be performed before the end of
Year 0; Year 3; Year 5; Year 7; Year 9

As you can see, new cars are inspected in advance. i.e. the inspection which was supposed to happened in Year 1 actually took place earlier. If anything, new cars are better businesses for Vicom.

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

What we should be worried is a repeat of 2005. here's the chairman statement in 2005 :

"Demand for vehicle inspections has fallen as more cars were deregistered during the year. This is because Certificate of Entitlement (COE) prices for cars have dropped by as much as 30%, prompting
car owners to replace their old cars for new. In fact, COE prices hit an all-time low in December 2005 when certificates for Category B cars went for $9,001 compared to the record high of $110,500 slightly more than a decade ago."


As seen from the above chart, % of car undergoing inspection and % of cars deregistered seems to have negative correlation. What VICOM did back then is to raise the inspection fee by $1 to $3 as well as to acquire additional stake in JIC Inspection. This allows them to avoid a fall in revenue.

Will VICOM be able to raise the price again should the unfortunate happen? Likely since they have not done so for quite some time. However, if the % of cars undergoing inspection falls back to 2005 level of 30%, the drop in revenue cannot be avoided. Cars inspection accounts for 40-50% of total vehicle inspection revenue while Goods & Other Vehicles inspection accounting for 30-35%. These 2 type of vehicles should be closely watched.

Car population grows by 53% from 2003 to 2013 while car inspection figure grows by 78%. If deregistration rate does not play a part in driving the vehicle inspection revenue for VICOM, what else is? Notice how most of their annual reports focus more on deregistration rate as compared to vehicle population growth rate.

Then again, there is SETSCO which has done reasonably well over the years and might be able to grow sufficiently to mitigate the risk of vehicle inspection.

Caveat Emptor

(vested)

I think the possibility of COE prices dropping to low levels like in Dec 2005 is quite low.

1) Demand for car is ever-present. Considering that the literacy level continues to grow, affluence level will also increase accordingly which will continue to fuel the demand for cars. It is still a dream for many to have their own vehicle instead of squeezing on public transport.

2) Moreover, our population is still growing at a slow rate, and not at 0%. This means that there will be more pressure on the transportation network to support this growing population. Assuming there is no change in the travelling pattern of the current population, I do not see the possibility that all the increased population through foreigners will choose the public transport route.

3) COE is basically a supply and demand model. Considering Singapore's limited land capability, there is only a certain number of cars that Singapore can accommodate. Even with the introduction of ERP on heavily-used roads, we need to have car parks to "keep" these cars. Coupled with many conflicting demands for the usage of land in Singapore (e.g. housing, hospitals, natural parks, etc.), the supply of COE will not be relax too much.

4) Lastly, I still see traffic jams on Orchard Road almost every other day. Unless the government has no problem incurring the wrath of its citizen by increasing the COE supply and allowing more traffic jams on other roads, I doubt that will happen.

Just my thoughts on the likelihood of COE prices increasing. I may be wrong in my thinking/ analysis, so they are definitely up for discussion.

(vested)

[lvpierre]

When it is least expected, it will happen. i still remb in the 90s when COE was 100+k, many people thought it will stay this high forever (the reasons quoted are similar: limited land supply, ever present demand etc) and it wouldnt not come down but it still come down.

Demand can change very quickly, you can want a car but if you lost your job or cannot afford it, you will not buy it. car is no longer a need in that situation anymore. You just need a shock event to happen (many lost their jobs, stock market crashed etc) and demand will be gone even thought supply can remain the same.

Never be complacent and history always repeat.

There is this misunderstanding that I've seen in people analysing this stock. Before a new car is allowed on the road, it must pass an inspection. Car owners don't see that because it's done before the car is handed over.

At the end of Year 3, the car has to be inspected before the road tax for Year 4 can be issued.

So here we have 2 inspections over a span of ~36 months. I don't see how that is inferior to a biennially inspection (1 every 24 months) from Vicom's perspective.

Here's the table for inspection.

Inspection has to be performed before the end of
Year 0; Year 3; Year 5; Year 7; Year 9

As you can see, new cars are inspected in advance. i.e. the inspection which was supposed to happened in Year 1 actually took place earlier. If anything, new cars are better businesses for Vicom.

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

What we should be worried is a repeat of 2005. here's the chairman statement in 2005 :

"Demand for vehicle inspections has fallen as more cars were deregistered during the year. This is because Certificate of Entitlement (COE) prices for cars have dropped by as much as 30%, prompting
car owners to replace their old cars for new. In fact, COE prices hit an all-time low in December 2005 when certificates for Category B cars went for $9,001 compared to the record high of $110,500 slightly more than a decade ago."


As seen from the above chart, % of car undergoing inspection and % of cars deregistered seems to have negative correlation. What VICOM did back then is to raise the inspection fee by $1 to $3 as well as to acquire additional stake in JIC Inspection. This allows them to avoid a fall in revenue.

Will VICOM be able to raise the price again should the unfortunate happen? Likely since they have not done so for quite some time. However, if the % of cars undergoing inspection falls back to 2005 level of 30%, the drop in revenue cannot be avoided. Cars inspection accounts for 40-50% of total vehicle inspection revenue while Goods & Other Vehicles inspection accounting for 30-35%. These 2 type of vehicles should be closely watched.

Car population grows by 53% from 2003 to 2013 while car inspection figure grows by 78%. If deregistration rate does not play a part in driving the vehicle inspection revenue for VICOM, what else is? Notice how most of their annual reports focus more on deregistration rate as compared to vehicle population growth rate.

Then again, there is SETSCO which has done reasonably well over the years and might be able to grow sufficiently to mitigate the risk of vehicle inspection.

Caveat Emptor

(vested)

I think the possibility of COE prices dropping to low levels like in Dec 2005 is quite low.

1) Demand for car is ever-present. Considering that the literacy level continues to grow, affluence level will also increase accordingly which will continue to fuel the demand for cars. It is still a dream for many to have their own vehicle instead of squeezing on public transport.

2) Moreover, our population is still growing at a slow rate, and not at 0%. This means that there will be more pressure on the transportation network to support this growing population. Assuming there is no change in the travelling pattern of the current population, I do not see the possibility that all the increased population through foreigners will choose the public transport route.

3) COE is basically a supply and demand model. Considering Singapore's limited land capability, there is only a certain number of cars that Singapore can accommodate. Even with the introduction of ERP on heavily-used roads, we need to have car parks to "keep" these cars. Coupled with many conflicting demands for the usage of land in Singapore (e.g. housing, hospitals, natural parks, etc.), the supply of COE will not be relax too much.

4) Lastly, I still see traffic jams on Orchard Road almost every other day. Unless the government has no problem incurring the wrath of its citizen by increasing the COE supply and allowing more traffic jams on other roads, I doubt that will happen.

Just my thoughts on the likelihood of COE prices increasing. I may be wrong in my thinking/ analysis, so they are definitely up for discussion.

(vested)

[safetyfirst]

At today's price of 5.75, vicom is trading at a pe of 18. Personally i think this is high considering there are quite a few cheap developers trading at low price to book and low pe. For example, i would rather buy FCL today instead of Vicom

[specuvestor]

There is this misunderstanding that I've seen in people analysing this stock. Before a new car is allowed on the road, it must pass an inspection. Car owners don't see that because it's done before the car is handed over.

At the end of Year 3, the car has to be inspected before the road tax for Year 4 can be issued.

So here we have 2 inspections over a span of ~36 months. I don't see how that is inferior to a biennially inspection (1 every 24 months) from Vicom's perspective.

Here's the table for inspection.

Inspection has to be performed before the end of
Year 0; Year 3; Year 5; Year 7; Year 9

As you can see, new cars are inspected in advance. i.e. the inspection which was supposed to happened in Year 1 actually took place earlier. If anything, new cars are better businesses for Vicom.

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

What we should be worried is a repeat of 2005. here's the chairman statement in 2005 :

"Demand for vehicle inspections has fallen as more cars were deregistered during the year. This is because Certificate of Entitlement (COE) prices for cars have dropped by as much as 30%, prompting
car owners to replace their old cars for new. In fact, COE prices hit an all-time low in December 2005 when certificates for Category B cars went for $9,001 compared to the record high of $110,500 slightly more than a decade ago."


As seen from the above chart, % of car undergoing inspection and % of cars deregistered seems to have negative correlation. What VICOM did back then is to raise the inspection fee by $1 to $3 as well as to acquire additional stake in JIC Inspection. This allows them to avoid a fall in revenue.

Will VICOM be able to raise the price again should the unfortunate happen? Likely since they have not done so for quite some time. However, if the % of cars undergoing inspection falls back to 2005 level of 30%, the drop in revenue cannot be avoided. Cars inspection accounts for 40-50% of total vehicle inspection revenue while Goods & Other Vehicles inspection accounting for 30-35%. These 2 type of vehicles should be closely watched.

Car population grows by 53% from 2003 to 2013 while car inspection figure grows by 78%. If deregistration rate does not play a part in driving the vehicle inspection revenue for VICOM, what else is? Notice how most of their annual reports focus more on deregistration rate as compared to vehicle population growth rate.

Then again, there is SETSCO which has done reasonably well over the years and might be able to grow sufficiently to mitigate the risk of vehicle inspection.

Caveat Emptor

(vested)

I think the possibility of COE prices dropping to low levels like in Dec 2005 is quite low.

1) Demand for car is ever-present. Considering that the literacy level continues to grow, affluence level will also increase accordingly which will continue to fuel the demand for cars. It is still a dream for many to have their own vehicle instead of squeezing on public transport.

2) Moreover, our population is still growing at a slow rate, and not at 0%. This means that there will be more pressure on the transportation network to support this growing population. Assuming there is no change in the travelling pattern of the current population, I do not see the possibility that all the increased population through foreigners will choose the public transport route.

3) COE is basically a supply and demand model. Considering Singapore's limited land capability, there is only a certain number of cars that Singapore can accommodate. Even with the introduction of ERP on heavily-used roads, we need to have car parks to "keep" these cars. Coupled with many conflicting demands for the usage of land in Singapore (e.g. housing, hospitals, natural parks, etc.), the supply of COE will not be relax too much.

4) Lastly, I still see traffic jams on Orchard Road almost every other day. Unless the government has no problem incurring the wrath of its citizen by increasing the COE supply and allowing more traffic jams on other roads, I doubt that will happen.

Just my thoughts on the likelihood of COE prices increasing. I may be wrong in my thinking/ analysis, so they are definitely up for discussion.

(vested)

Hi Lester

Fair to say that your analysis is sound... No offence but would any of your statements 1-3 change (and some may argue 4) if you wrote this back in 2004?

I'm trying to use this example to also demonstrate that fundamental analysis has to also be time sensitive and "what's changed" driven. When I read a research report on undervalued stock... I tend to ask: any difference if the report is dated 5 years ago?

[Temperament]

There is this misunderstanding that I've seen in people analysing this stock. Before a new car is allowed on the road, it must pass an inspection. Car owners don't see that because it's done before the car is handed over.

At the end of Year 3, the car has to be inspected before the road tax for Year 4 can be issued.

So here we have 2 inspections over a span of ~36 months. I don't see how that is inferior to a biennially inspection (1 every 24 months) from Vicom's perspective.

Here's the table for inspection.

Inspection has to be performed before the end of
Year 0; Year 3; Year 5; Year 7; Year 9

As you can see, new cars are inspected in advance. i.e. the inspection which was supposed to happened in Year 1 actually took place earlier. If anything, new cars are better businesses for Vicom.

I don't think that every single new vehicle needs to be send for inspection. Instead, it is just one unit of every single vehicle type for Year 0. http://www.vicom.com.sg/vitas.htm Do correct me if I am wrong.

What we should be worried is a repeat of 2005. here's the chairman statement in 2005 :

"Demand for vehicle inspections has fallen as more cars were deregistered during the year. This is because Certificate of Entitlement (COE) prices for cars have dropped by as much as 30%, prompting
car owners to replace their old cars for new. In fact, COE prices hit an all-time low in December 2005 when certificates for Category B cars went for $9,001 compared to the record high of $110,500 slightly more than a decade ago."


As seen from the above chart, % of car undergoing inspection and % of cars deregistered seems to have negative correlation. What VICOM did back then is to raise the inspection fee by $1 to $3 as well as to acquire additional stake in JIC Inspection. This allows them to avoid a fall in revenue.

Will VICOM be able to raise the price again should the unfortunate happen? Likely since they have not done so for quite some time. However, if the % of cars undergoing inspection falls back to 2005 level of 30%, the drop in revenue cannot be avoided. Cars inspection accounts for 40-50% of total vehicle inspection revenue while Goods & Other Vehicles inspection accounting for 30-35%. These 2 type of vehicles should be closely watched.

Car population grows by 53% from 2003 to 2013 while car inspection figure grows by 78%. If deregistration rate does not play a part in driving the vehicle inspection revenue for VICOM, what else is? Notice how most of their annual reports focus more on deregistration rate as compared to vehicle population growth rate.

Then again, there is SETSCO which has done reasonably well over the years and might be able to grow sufficiently to mitigate the risk of vehicle inspection.

Caveat Emptor

(vested)

I think the possibility of COE prices dropping to low levels like in Dec 2005 is quite low.

1) Demand for car is ever-present. Considering that the literacy level continues to grow, affluence level will also increase accordingly which will continue to fuel the demand for cars. It is still a dream for many to have their own vehicle instead of squeezing on public transport.

2) Moreover, our population is still growing at a slow rate, and not at 0%. This means that there will be more pressure on the transportation network to support this growing population. Assuming there is no change in the travelling pattern of the current population, I do not see the possibility that all the increased population through foreigners will choose the public transport route.

3) COE is basically a supply and demand model. Considering Singapore's limited land capability, there is only a certain number of cars that Singapore can accommodate. Even with the introduction of ERP on heavily-used roads, we need to have car parks to "keep" these cars. Coupled with many conflicting demands for the usage of land in Singapore (e.g. housing, hospitals, natural parks, etc.), the supply of COE will not be relax too much.

4) Lastly, I still see traffic jams on Orchard Road almost every other day. Unless the government has no problem incurring the wrath of its citizen by increasing the COE supply and allowing more traffic jams on other roads, I doubt that will happen.

Just my thoughts on the likelihood of COE prices increasing. I may be wrong in my thinking/ analysis, so they are definitely up for discussion.

(vested)

Hi Lester

Fair to say that your analysis is sound... No offence but would any of your statements 1-3 change (and some may argue 4) if you wrote this back in 2004?

I'm trying to use this example to also demonstrate that fundamental analysis has to also be time sensitive and "what's changed" driven. When I read a research report on undervalued stock... I tend to ask: any difference if the report is dated 5 years ago?

Of course, time changes everything. Nothing stand still. Why then we say, "The marching of time" or "Time and tide wait for no man". Simple man, simple logic.
Example, when you are on your last moment on Earth, you will realise naturally, no matter how much is your wealth & possessions, they count for nothing. So why we are so afraid of being poor? Don't you? We can't escape the "irony of life". Can't we?

[Ben]

Hi Lester

Fair to say that your analysis is sound... No offence but would any of your statements 1-3 change (and some may argue 4) if you wrote this back in 2004?

I'm trying to use this example to also demonstrate that fundamental analysis has to also be time sensitive and "what's changed" driven. When I read a research report on undervalued stock... I tend to ask: any difference if the report is dated 5 years ago?

Probably little has changed from what was written if they were written in 2004…BUT…the price of VICOM has changed dramatically. So, while the ability to perform FA is important, the ability to see things (catalysts) before others is even more important. Many successful business men/women are successful because they have better foresight than others and move ahead of the pack.