A breather for Vicom?

Demand for old cars for rental slows scrappage

The number of cars taken off the road has slowed, contrary to expectations, as taxi app operators like Uber and GrabTaxi snap up older vehicles to grow their rental fleets.

More than a third of Singapore's car population is between eight and 10 years old, but the recent phenomenon may be putting the brakes on the scrap rate.

Taxi app firms Uber and GrabTaxi are snapping up older cars and renting them out as "limousines" which ply like "on-call cabs". So while a 91/2-year-old car may previously have gone to the scrapyard, it remains on the road for another six months.

Because the rental rate of such old vehicles is low, they are proving to be popular with former cabbies as well as people who are willing to be part-time drivers in order to have access to a car.



Respite
This small but much needed news may be the catalyst that Vicom is yearning for in a bid to counter the tsunami of cars heading for de-registration. This trend may soften the tough landing for Vicom's maintenance unit and hopefully smoothen the entire imbalance age of the COE issued in Singapore.

Vicom closed $6 on Wednesday, giving a yield of 4.38%. I'm still having the likings for this company due to the high barrier of entry and safe nature of its business.

Besides, they've the chance to raise their fees after keeping the same rates for about a decade. 

I wrote an article about Vicom and how I think it's a good buy. The factors are still intact. Slow and steady eh?

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