VICOM

This seems to be quite a popular company among some other financial bloggers, so I'll be doing some analysis on it as well. Background: VICOM, a subsidiary of ComfortDelgro, provides inspection and testing services for vehicles and is one of the 3 companies that run LTA authorized inspection centres, so if you're a car owner, you may be familiar with the company

(Image source: http://www.vicom.com.sg/)

Its income statement seems quite good with both revenue and profits increasing for the past 5 years (2010-2014). It doesn't seem to be expanding so this growth is likely to be from increases in its fees or maybe increase in market share. Considering its position as one of the 3 companies that run LTA authorized inspection centres, which would provide it with a steady stream of customer, this earnings growth would seem even better as it shows that it is able to increase its fees, which may allow it to continue growing in the future.

The balance sheet also seems good. The company has sufficient cash reserves (info from AY2014) to cover its liabilities a few times over. It also has no debt, so the company may be able to take on some debt or use some of its cash reserves to expand, maybe into other regional markets, in the future. But that being said, it may not enjoy the favorable position that it enjoys in Singapore if it were to do so.

Its cash flow statement looks good too. Not much capital expenditure, no large increases in working capital (for 2013 and 2014) and no loans taken out, so just a net increase in cash after paying dividends, which is a positive sign.

The price of the share is not bad as well, P/E ratio around 17, so around a 5.88% return annually, which is not bad considering that the company seems quite stable and may even be able to grow earnings in the future. But the high P/B ratio of around 3.86 does not provide much margin of error and if the company does run into any problems, there's no margin of safety of the investor if the company is liquidated.

But then we have to consider some of the risk factors for the company. The one main one that stands out for me is that the company hinges on its LTA authorized centre status, which has allowed it to generate a high ROE in excess of 20%. Without this, I think it would be quite hard for the company to be able to maintain its profits, as inspections are something very hard to differentiate from competitors. So if more centres are added, it would have an adverse impact on the group's bottom line.

I don't think that this is a particularly good buy, but it is quite reasonably priced. It is also quite a stable company, with only one main risk factor from what I can think of. Maybe it'll continue to grow its profits, but I think that there may be better buys out there. (Just a last note: The share isn't actively traded so it isn't very liquid and there may be a large difference in bid/ask prices)

UPDATE: Thanks to LetsGetRichTgt from Let's Get Rich Together for pointing out that VICOM's fees have not increased for the past 4 to 5 years, But I can't think of other reasons for the increase in profits other than an increase in their market share of the inspection business.

If you have enjoyed this post and would like to receive notifications on new posts, you can subscribe to my blog via email or like our Facebook page