My maiden posting on the last day of my vacation.
Vicom is a compelling investment on the basis of its quality, growth & valuation.
It has 2 main segments: vehicle inspection (quite well-known), and testing services (less well-known).
dydx earlier wrote a concise overview
(07-11-2010, 07:22 AM)dydx Wrote: [ -> ]The main driver for Vicom's 2 core businesses - vehicles inspection; and other inspection/certification services under subsidiary SETSCO - is primarily based on government regulations and controls on public safety, product safety, environmental protection, technical specifications in certain commercial/industrial activities, etc. Historically, all these have incresaed over time, and will continue to increase if we believe the Singapore government is a responsible one and will continue to exert more control on certain activities and other aspects in our economy. In an urbanized environment like ours in Singapore, and as more complex products/technologies and activities emerge in Singapore over time, there should be more such government regulations and controls being introduced. This explains why Vicom's overall business volume, revenue and profits continue to grow yearly, and why Vicom has proven to be a great investment for its loyal shareholders and early investors.
Of course, as an additional bonus, we should not forget Vicom with its 7 vehicle inspection centres also owns quite a lot of valuable industrial land/space which has been deriving good rentals and is undervalued in its B/S.
To quantify their superior quality, growth & valuation:
All the info here is taken from their financial statements.
Quality:
Financial strength: Balance sheet is net cash, which keeps piling up.
ROE (ttm – Sep 2010): 28%
ROIC (ttm – Sep 2010, subtracting goodwill): 67%
For the above 2 key segments, return on tangible assets is above 200%.
Cash flow has been good. Since 2005, free cash flow has exceeded net income.
Management looks loyal & experienced. Key shareholder Comfort Delgro is also well-regarded.
Growth:
From 2005 – 2009,
Revenues: 12%,
Profits and cash flow: 22-23%
Dividends:15%
TTM Net income: 18%.
With Singapore vehicle owners being a generally affluent lot, Vicom has been able to offer more services like an emission testing lab in ’09, and is likely to be able to keep charging higher prices.
The testing arm continues to expand its client base to include IRs, oil & gas, chemicals etc and offer a greater range of capabilities.
With these 2 arms, it should grow faster than the average Singapore company.
Valuation:
After subtracting the $33.5m cash, at $2.93, the company is valued at 10.3x earnings (ttm), which is much cheaper than the STI.
With dividend yield of 4.2%, if we assume that dividends grow at half their historical growth rate (we put 7.3% here), and no change in valuation, we have a 12% total return, which is quite decent.
If dividends grow faster than 10% pa, and valuations improve (at least 50% higher), the returns can be quite compelling.
Risks:
Slowdown in vehicle population.
Testing arm may be sensitive to Singapore’s project investment cycles.
Volume is quite low.
Disclaimer: I own shares of Vicom.