Vicom LTD Analysis.

Hi today I would like to analysis the Company: Vicom Ltd.

VICOM Ltd is currently Singapore's largest technical testing and vehicle inspection company, offering a comprehensive range of test and vehicle inspection. VICOM offers services such as road tax renewal, transfer of vehicle ownership, sale of motor insurance/general insurance, in-vehicle unit services, speed limiter test, enforcement check on overloaded vehicles, chassis dynamometer smoke test, pre-registration check for parallel importer, tinted glass check and car evaluation.Today, it provides inspection services for private cars, taxis, motorcycles, light goods vehicles, heavy goods vehicles and buses. The Company has also exported its expertise to various countries around the region.

Its subsidiary also serves other profitable purposes, such as providing testing, calibration, inspection, consultancy and training services to a wide spectrum of industries. The subsidiary are mainly, VICOM Inspection Centre Pte Ltd, VICOM Assessment Centre Pte Ltd (VAC), SETSCO Services Pte Ltd, JIC Inspection Services Pte Ltd.

More information can be found on its corporate website:http://www.vicom.com.sg

I will analysis first analyze the company base on pass performance, since I am approaching stock picking with a defensive mindset. Thereafter I will attempt to explain what cause such performance for the company, and finally why I think the company will grow.

	FY1 1997	FY1 1998	FY1 1999	FY1 2000	FY1 2001	FY1 2002	FY1 2003	FY1 2004	FY1 2005	FY1 2006
Book value per share	0.405	0.419	0.447	0.477	0.475	0.529	0.595	0.638	0.696	0.734
Earnings per share	0.026	0.036	0.056	0.052	0.057	0.057	0.100	0.093	0.104	0.123
P/E Ratio	26.731	11.389	8.571	12.115	8.596	10.965	8.509	10.356	8.934	9.919
Dividends/share	0.028	0.022	0.022	0.028	0.029	0.029	0.050	0.046	0.052	0.117
Net Inc/Net Profit (Loss)	2.048	2.891	4.441	4.195	4.600	4.641	8.157	7.676	8.658	10.295
Current ratio	2.777	2.395	2.932	3.252	0.864	1.887	1.084	1.022	1.379	1.512
Shares out	80.000	80.000	80.000	80.752	80.752	81.218	81.943	82.877	83.219	83.881

• As you can see, the company's Net profit has been generally increasing every year, except for the year 2000 and 2004. This in turn is reflected in its increasing Earnings per share (EPS).
• Notice that Book value per share has been on a general increase.
• The current ratio has been healthy over the pass 10 years. It has been careful about financing itself, never borrowing more than its asset, as reflected by the current ratio. (Benjamin Graham mentioned that for defensive investors, the company's current ratio should not be below 1.5.)
• The company was never stingy with its earnings; the investors are rewarded with dividend each year.In 2006, the company doubled its dividend. Its okay if a company decreases its dividend payout, but something is not right when it completely stops paying out and more attention have to be paid to its financial when that happens..
  
• Finally, its shares out hasn't changed much throughout this past few years. This is a good sign, since more shares out means more dilution for the existing shareholders. It would be even better if the company is buying back its own shares though.

As you can see, the management has done a great job growing the business in the past few years. A quick check to on today's price shows that Vicom is selling at SGD$1.74, which yields a P/E ratio of 14 compared to its EPS on Feb 07 (SGD$0.123). For the 2 quarters in 2007, the Group's EPS is standing at SGD$0.0954 and Book Value per share is SGD$0.7432. The latest dividend issued on 12 Sept was 15.5 cents per share!

That is so much for the past performance. As Mr Buffett coined it before, we do not drive looking only at the rear mirror, we have to look at the possible future of Vicom. To extract this information, we have to do our research. Digging into annual report is one way of doing. Going out to find out is also another way of doing research.

Digging into the annual report, I noticed that Vicom has already gained 73.1% of the market share for vehicle inspection, through Vicom Inspection centre. This segment brought about $17million, making it 30% of its income. $32 million comes from Setsco, where test and inspection centre of various plants and companies. This makes about 58% of its profit. Since we have identified where the main income comes from, we should analyze them with more intent then the other revenue generating segment.

In my opinion, it would be hard to increase market share for vehicle inspection, and highly impossible to gain 100% market share. Therefore, the possibility of this segment's income would probably be the same or slightly lower. Unless Vicom increases charges, we wouldn't be banking on this segment to substantially increase the earnings. Rather, the trump card would be SETSCO. If they are able to increase revenue coming from there, it would do more help on the income statement, but that is something I can't determine as of now.

This lack of information on the probable increase in revenue is hard to determine just by sitting in front of the comp. And thus field research would be needed.

What I like about this Company:

• Its management is experienced and respectable, most of them are holding onto appointments in large listed corporations.
• It has seemingly monopolized vehicle inspection. Anything that got to do with vehicles, Vicom should have a piece of it. Having said this, I'm have a certain level of confidence that the market share wouldn't decrease drastically due to competitor. Other minor possibility that might jeopardize this segment's income would be drivers not needing to inspect their vehicles.

What I don't like about this Company.

• The dividend that they issued, stated as 97% of the Grp's profit after tax. This is disturbing since not much is reinvested into the business, which means that there might be possibility that they may not have explored enough data to determined how much they should reinvest.
• Also, under my current state/location, I am unable to find out on the sales of SETSCO.
  

Would I buy it? Currently the company is earning 9.54 cents. There has been estimates that it might hit 17 cents by this year. This might account for the price of $1.7 since they expect P/E ratio to be near to its historical P/E (11). Personally, I feel that the company might be able to improve on the 17 cents estimates. Hence I feel that it is a potential buy. At this point of time, the stock is not undervalued, nor is it overvalued. For investors who hold it for long term, this company is solid. But for defensive investors like me, having an additional safety measures is a must. I always look for 20-50% undervalued stock. Thus at an estimate of 17 cents, with historical P/E ratio of 11, the safest way to buy is at SGD$1.5.

Basically, this is what I feel, my decision is purely my own and in no way should affect your opinion.

Fiscal Year 2005 Financial Statement
Fiscal Year 2006 Financial Statement
2007 1st Quarter Financial Statement
2007 2nd Quarter Financial Statement

2006 3rd Quarter Financial Statement

Additional Information: VCOM.SI

Today's Price close at: $1.73

The next financial release will be in early Nov, pls be on a lookout.

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