Vicom Ltd Saw Revenue and Profit Increase Despite Decline in Vehicle Inspections for 2018

Listed in 1995, Vicom Ltd is a leading inspection and technical testing company in Singapore. It offers vehicle inspection services through Vicom and JIC and as well as non-vehicular inspection services to aerospace, marine, electronics, oil & petrochemical, offshore, and building construction industries via SETSCO. As of 27 March 2019, Vicom Ltd is worth S$ 579.7 million in market capitalisation.

Recently, I had received its latest annual report 2018. As such, in this article, I’ll bring an update on its financial results and a handful of valuation figures based on its current stock price of S$ 6.54 a share today. Thus, here are 9 main things to know about Vicom Ltd before you invest.

  • Number of Vehicles Inspected
    The amount of vehicles inspected by Vicom Ltd has fallen by 1.6% from 468,807 in 2017 to 461,088 in 2018. It marks the third consecutive year of decline from its peak of 522,140 in 2015. This is because of the declining amount of vehicles due for inspection arising from ‘Zero-Growth’ policy for passenger cars and motorcycles by the government starting in 2018 to propel Singapore into a car-lite and environmentally friendly society.

Source: Vicom Ltd’s Annual Reports

  • Revenue
    Revenues had grown by 3.1% year-on-year from S$ 97.0 million in 2017 to S$ 100.0 million in 2018. From a longer view, Vicom Ltd has averaged S$ 100 million in revenues a year from 2016 to 2018 after it fell from S$ 108.2 million in 2014, its highest in the 10-year period. The revenue fall was in tandem with Vicom Ltd’s fall in the number of vehicles inspected over the last 4 – 5 years.

Source: Vicom Ltd’s Annual Reports

  • Profitability  
    Shareholders’ earnings have grown by 30.9% year-on-year from S$ 26.5 million in 2017 to S$ 34.7 million in 2018. It was impressive considering that its revenue has only grown by 3.1% during the financial year. From a closer view, it is clear that Vicom Ltd’s increase in earnings was largely due to a one-off exceptional gain of S$ 7.7 million, derived from lease surrender of its former premise at 18 Teban Gardens Crescent (18TGC) to JTC Corporation for redevelopment purposes.

    Excluding this gain, Vicom Ltd would have recorded as much as S$ 27.0 million in shareholders’ earnings or S$ 0.304 in earnings per share (EPS) for 2018. This figure is comparable with its earnings generated for 2017 of S$ 26.5 million.

Source: Vicom Ltd’s Annual Reports

  • Cash Flow Management
    From 2009 to 2018, Vicom Ltd generated S$ 321.1 million in cash flows from its operations and S$ 6.5 million in interest income. Out of which, it has spent:

    – S$ 59.2 million on net capital expenditures (CAPEX).
    – S$ 195.7 million in dividends to its existing shareholders.

    Vicom Ltd had increased its cash balances from S$ 42.4 million in 2009 to S$ 104.1 million in 2018. Thus, Vicom Ltd remains a cash-cow and is capable of funding its working capital and reward its shareholders through generous dividend payments without needing the raise equity or debt.

Source: Vicom Ltd’s Annual Reports

  • Balance Sheet Strength
    As at 31 December 2018, Vicom Ltd has non-current liabilities of S$ 8.7 million and shareholders’ equity of S$ 150.8 million. Hence, its gearing ratio is 5.78%. It has current assets of S$ 122.6 million (S$ 104.1 million comprises of cash balances) and current liabilities of S$ 29.7 million. As such, its current ratio is 4.12. Thus, Vicom Ltd’s balance sheet remains a healthy one with low debt-to-equity ratio and high current ratio.

  • Who Owns Vicom Ltd?
    ComfortDelgro Corporation Ltd is the biggest shareholder of Vicom Ltd with a direct shareholding of 67.06% as of 26 February 2019.

  • P/E Ratio
    In 2018, it has reported earnings per share (EPS) of S$ 0.392. But, as we discussed earlier, it is inclusive of an exceptional profit of S$ 7.7 million. Excluding it, Vicom Ltd would have reported EPS of S$ 0.304.

    As I write, Vicom Ltd is trading at S$ 6.54 a share. Its current P/E ratio is as follows:

    – 16.68 if it is calculated based on EPS of S$ 0.392.
    – 21.51 if it is calculated based on EPS of S$ 0.304.

    Both figures are above its 10-Year P/E Average of 15.73. If you base the P/E Ratio calculation with the one where its EPS is S$ 0.304, then, we’ll find that Vicom Ltd’s current P/E Ratio has breached the 20 levels and it is at its highest currently.

  1. P/B Ratio
    As at 31 December 2018, Vicom Ltd has net assets a share of S$ 1.70 a share. Thus, its current P/B Ratio is 3.85, the highest in 10 years.

  • What’s my Dividend Yield?
    Vicom Ltd has paid out S$ 0.453 in total dividends, inclusive of S$ 0.086 in special dividends per share (DPS). Hence, excluding the special DPS, I find that Vicom Ltd would have paid S$ 0.366 in DPS. Thus, its dividend yield is as follows:

    – 5.60% if it excludes special DPS.
    – 6.92% if it includes special DPS.

    Both figures are above its 10-Year Average of 5.15% per year. The cause for both figures to be higher is due to the substantially higher DPS paid out to its shareholders in 2017 and 2018.

VIA’s Verdict

Based on the latest financial results, I found that Vicom Ltd has:

– 1.6% decline in the number of vehicle inspections in 2018 from 2017.
– 3.1% increase in group revenues in 2018 from 2017.
– 1.9% increase in earnings in 2018 from 2017, excluding one-off gains.

But, its stock price had recently spiked up some 10% -15% in 1 – 2 years from S$ 5.50 – S$ 6.00 levels to the present of S$ 6.54. The increase in the stock price of the company does not tally with its latest financial results as discussed above.

Source: Google Finance

I believe the spike in Vicom Ltd’s stock price is linked to its S$ 7.7 million profits which are non-operational and non-recurring in nature. As a result, based on its current price, Vicom Ltd is trading at its highest P/E and P/B Ratio in 10 years.

So, would you invest in Vicom Ltd at S$ 6.54 today?

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