Nibbled Vicom despite the "looming down cycle"

Vicom, the name that is ubiquitous with all car owners in Singapore.

Recently, its share price has been falling due to worries of the lopsided ageing of the private cars and thus, the massive de-registration of the vehicles at the end of their 10 year lifespan.

Why then did I decide to take a small position in Vicom today?

Excellent Balance Sheet

1. Massive Cash holdings that is increasing year on year
2. Constant free cash flow generated (refer to point 1)
3. ZERO debt
4. Constant increase in dividend payouts

Market Leader

Like SATS , who is the market leader in its own industry, Vicom commands more than 70% of the Vehicular testing in Singapore.

Massive De-registration?

Owners may choose to extend their COE instead of bidding for a new COE when the prices are sky high. If that happens, these vehicles would require more frequent testings and this bodes well for Vicom.

Price Adjustment (after GE)?

Vicom adjusted its Car Inspection price in 1997, 2001, 2005 and 2006. Ever since there hasn't been an increase in pricing.

I believe this is a deliberate and calculated move made by management. Notice the last revision was almost 9-10 years ago (where most of the vehicles, now due for their 10th year mark, were less than 3 year old?).

Vicom seemed to have timed their price adjustments to compensate for the lopsided ageing of the private car segment. We believe with rising labour and other operating costs for the last 10 years, Vicom will adjust its price during this "down cycle". (most definitely after the General Elections as well, =p)

SETSCO 

A subsidiary of Vicom which performs inspection and testing services (non-vehicular). To put things into perspective, the breakdown of Vicom's Vehicular and Non-Vehicular profits is 1/3 and 2/3 respectively. 

This segment is considered cyclical and is affected by:

1. Manufacturing and Construction (New MRT Lines, BTO flats)

2. Oil & Gas industry (current experiencing downturn)

3. Aviation (expecting a boom in Singapore in the long run)

Good Business overall

Vicom is like a mini SATS to me (except for the pure Singapore play). I believe it will do well in the long run and I found the opportunity to take a small position for many more good years ahead =D