Vicom Ltd has just released their FY results yesterday
evening which I thought was decent.
Results Highlight
Vicom’s revenue grew 8.1% year on year to $105m while
profits grew 7.7% higher at $28.4m.
profits grew 7.7% higher at $28.4m.
Considering the company’s activity slowdown in the past
year, this is decent numbers we are talking about.
year, this is decent numbers we are talking about.
The company’s cash flow from operations (CFO) has increased
by about 7% to $32.5m while Free Cash Flow (FCF) for the year was at $28.6m.
The management has declared a higher final and special dividend for the year at
$0.081 and $0.064 compared to $0.075 and $0.032 respectively in 2012, giving a
23.6% increase in dividend growth year on year. Dividend payout remains at
slightly below 60% for the year which means that the company gets to retain the
rest of the $12.5m which flows back to cash in the balance sheet.
by about 7% to $32.5m while Free Cash Flow (FCF) for the year was at $28.6m.
The management has declared a higher final and special dividend for the year at
$0.081 and $0.064 compared to $0.075 and $0.032 respectively in 2012, giving a
23.6% increase in dividend growth year on year. Dividend payout remains at
slightly below 60% for the year which means that the company gets to retain the
rest of the $12.5m which flows back to cash in the balance sheet.
The company has been growing their humongous cash equivalent
which now stands at $78.5m (that is more than 50% of the total assets they
own). With the company being debt-free, it will not be subject to any interest
rate risk that investors have been so worried about in the market. The worry
would come more from the operational outlook which I will explain more in the
later section.
which now stands at $78.5m (that is more than 50% of the total assets they
own). With the company being debt-free, it will not be subject to any interest
rate risk that investors have been so worried about in the market. The worry
would come more from the operational outlook which I will explain more in the
later section.
Outlook
Management has given guidance that in the next 12 months,
demand for the vehicle testing services is expected to moderate as more
vehicles are expected to be deregistered in the year. For the non-vehicle
testing services, demand is expected to grow despite the keen competition.
demand for the vehicle testing services is expected to moderate as more
vehicles are expected to be deregistered in the year. For the non-vehicle
testing services, demand is expected to grow despite the keen competition.
Thoughts
Based on the annual report 2012, we know that the number of
vehicle testing from Vicom amounted to 505,123 while LTA figures came to
687,484. This gives a rough 73% market share (505,123/687,484) for Vicom
for its vehicle testing service. With this being the core drivers of Vicom’s
business, a dip in the number of vehicle testing demand services will reduce
the company’s earnings, all things being equal.
vehicle testing from Vicom amounted to 505,123 while LTA figures came to
687,484. This gives a rough 73% market share (505,123/687,484) for Vicom
for its vehicle testing service. With this being the core drivers of Vicom’s
business, a dip in the number of vehicle testing demand services will reduce
the company’s earnings, all things being equal.
A Finance Professor I had in my class always said to us
“What is expected will be priced”.
“What is expected will be priced”.
The question for Vicom becomes how many vehicle inspection
demand dip are we expecting. Let’s look closer.
demand dip are we expecting. Let’s look closer.
|
Year
|
No. of Vehicles Inspection (by LTA)
|
% Growth
|
|
2008
|
530,894
|
–
|
|
2009
|
566,358
|
6.7
|
|
2010
|
621,889
|
9.8
|
|
2011
|
666,842
|
7.2
|
|
2012
|
687,484
|
3.1
|
|
2013
|
697,870
|
1.5
|
|
2014
|
?
|
?
|
Based on the past 6 years data, it appears that the total
number for vehicle inspection has increased, albeit at a decreasing growth rate
over the years. This is not surprising given that on the 13th Jan
2014, LTA released a statement which states that with generally rising vehicle
de-registration numbers in recent months and with the trend likely to continue
until about 2016, it seems that total number of vehicle inspection growth will
slow down, with the two being correlated together.
number for vehicle inspection has increased, albeit at a decreasing growth rate
over the years. This is not surprising given that on the 13th Jan
2014, LTA released a statement which states that with generally rising vehicle
de-registration numbers in recent months and with the trend likely to continue
until about 2016, it seems that total number of vehicle inspection growth will
slow down, with the two being correlated together.
|
Year
|
No. of Vehicles Deregistration under VQS (by LTA)
|
|
2003
|
109,710
|
|
2004
|
114,870
|
|
2005
|
117,461
|
|
2006
|
104,809
|
|
2007
|
81,555
|
|
2008
|
77,920
|
|
2009
|
58,102
|
|
2010
|
40,707
|
|
2011
|
36,980
|
|
2012
|
34,349
|
|
2013
|
41,501
|
With that being said, I do not forecast a huge drop suddenly
in Vicom’s earnings. Assuming a flat growth in the vehicle testing services in
2014, the growth would probably come from the non-vehicle testing services
which are expected to grow. The question then becomes what should investors do
with Vicom not only in 2014 but in 2015, 2016 and beyond.
in Vicom’s earnings. Assuming a flat growth in the vehicle testing services in
2014, the growth would probably come from the non-vehicle testing services
which are expected to grow. The question then becomes what should investors do
with Vicom not only in 2014 but in 2015, 2016 and beyond.
Conclusion
Some investors have expressed disappointment at the final
and special dividends announced by Vicom yesterday. Even though dividend has
grown 23.6% year on year, investors were still expecting more given the huge
cash hoard they currently have in their balance sheet.
and special dividends announced by Vicom yesterday. Even though dividend has
grown 23.6% year on year, investors were still expecting more given the huge
cash hoard they currently have in their balance sheet.
To me, I think the company is holding onto their cash in
anticipation for future slowdown in their businesses. Even with the slowdown, I
expect the company should still be able to generate more than $16m of earnings
comfortably, which means I do not foresee the dividends to drop anytime soon.
At the worst scenario, they can dip into their cash holding to pay out the
$0.225/share dividends to investors.
anticipation for future slowdown in their businesses. Even with the slowdown, I
expect the company should still be able to generate more than $16m of earnings
comfortably, which means I do not foresee the dividends to drop anytime soon.
At the worst scenario, they can dip into their cash holding to pay out the
$0.225/share dividends to investors.
At current price of about $5.66, it is yielding at about 4%
while PER is around 17.5.
while PER is around 17.5.
For me, I will be holding on for the shares at the moment
while enjoying the decent 4% dividends and the $78.5 cash hoard the company
has.
while enjoying the decent 4% dividends and the $78.5 cash hoard the company
has.
Thanks for the detailed and insightful analysis of Vicom.
Renewed investor
Thanks Renewed Investor.
Hope you find it useful 🙂
Hi B,
Your analysis is very useful. As for me, I am not invested in comfort delgro or vicom as I have the dividend returns of 3-4% too low. For non reits stocks, I am looking at 5 – 6% dividends.I haven't bought any at the moment as the prices are still too high.
Best,
R.I
Hi renewed investor
One thing though I wanted to highlight is that these companies like vicom and comfort even though yield is only 3 -4% they only consisted around 60% payout while reits are generally paying out more than 90% earnings so it isnt quite a fair bit of comparison.
The amount retained by comfort and vicom is much more that they are able to use the money to grow their business or maybe a special dividend one day 😉