19 May 2014

VICOM - what's there not to like about this company?

Car ownership such a problem in land scarce Singapore.  Especially in recent years with the high price of the infamous Certificate of Entertainment (COE).  With the stroke of a pen (or a paper) and one foots out tens of thousands of dollars before even talking about the cost of the car itself.  And thereafter, there's the cost of road tax, insurance, fuel and maintenance.  Not to forget, the car is a rapidly depreciating asset of 10 years. It's a real money sucker.  So, don't invest in the car.  Invest in something that benefits from car ownership. Who else then but VICOM?

Vicom Inspection Centre (Kaki Bukit)

What's there not to like about this company? Every car needs to have its periodic car inspection. It's regulated. That's a guaranteed business.

Are people going to move away from car ownership?  Naw.  Not even if the MRT lines work well and taxi drivers decide to drive under all weather, all hours.

Is VICOM well run?  A visit to VICOM would show just how few workers they need to transact each car through its inspection process.  The process is well oiled and highly automated. Keeps churning away.

DPS (SGD) 0.1180 0.1290 0.1440 0.1500 0.1610
EPS (SGD) 0.2333 0.2559 0.2865 0.2989 0.3215
[Source: POEMS]

Given the above, we can see that it has very good margins, and absolutely no debts!  

Its dividend payout has been great - currently at 2.72% and deceivingly lower, but would usually be much higher by the end of each FY.  Its dividends has been consistently climbing up from 0.118 (FY09) to 0.161 (FY13).  DPS has also maintained below EPS throughout the past 5 years. Hard to find such companies on the SGX.  Tell me if you know of others with such a characteristic.  I consider this to be one of the high yield and dividend paying stock.  

There's probably not much room for significant growth though, so don't expect heart-stopping growth. But it should remain steady.  Does anybody actually check how much they pay for each car inspection? I'm guessing probably not. Just pay! And in fact, with more than just a sense of gratitude to get a pass so that you can continue to use the car without needing further work. I could hear the expletives from the truck driver in the next lane whose car didn't.

P/E ratio perhaps a bit high right now.  But what's there not to like about this stock?  Really.

[Disclaimer: This is a not a call to buy or sell.  Merely a record of why I invested in this stock.]


Anonymous said...

Vicom is subjected to regulatory risk. For example, if lta allows car owner to submit their car maintainence check as an alternative to the independence check, vicom inspection business will collapses, as people can save money by avoiding the independent check. Though the chance of happening is low, but it is not entirely impossible. If more vehicle owners complain, the probability will increase. So do take note.

The award of a 3rd license for car inspection by lta which will increase competition and lower the price of car inspection will also affect vicom badly. So do take note also.

When ste decides to compete more aggressively w vicom, this will also affect vicom badly as it has a much bigger share currently and there is no diff in going to any of the centre.

For sestco, competition is stiff and it will not grow nicely if competition increases.

Just some comments


Lizardo said...

Thanks for highlighting this risk. Indeed, if another player comes in, and adopts price pressure, it would indeed force down the margins.