Investing in Vicom – It’s about time!

Vicom

vehicle inspection

 

Its about time I added Vicom into the Bf Gf portfolio.  It’s the darling stock, the must-have stock in all value/dividend investors’ portfolio.  In my search for Singapore stocks that show consistent dividend-growth, only a few names pop out and Vicom is one of them.

 

At first I was reluctant to do add this stock in as I was concerned about one factor :  How many cars can our tiny island hold???

 

Whenever I drive around with the Gf, I will be cursing and swearing at the traffic.

 

“11pm also can jam? What the hell is going on in Singapore?”

 

When we reach our destination and I try to park…

 

“OMG. Why isn’t there a single available lot here?!?!”

 

I will lament and get impatient while I stalk people around carparks so that I can snatch the parking lot from them.  In one particular nasty incident, a Chao Ah Beng swooped in and snatched the lot blatantly in front of me and things nearly got ugly when I got out of the car to confront him.

 

“Got car get stuck in jam.  Got car no space to park.”  That’s my favorite phrase every time.  I can’t help but think that there will come to a point in time when our traffic situation will become like Bangkok, Thailand.  Of course, our efficient government won’t let that happen.  They will raise COE prices so high that you will have to pawn your children to pay for your car.

 

Enough of my first world problems, back to the topic:

 

Blog Resources to read more about Vicom

So yes, I used the divestment from Nam Cheong to diversify into Vicom, which in my opinion, has much less risks than a cyclical oil & gas business.  To understand more about Vicom, please refer to 2 very well-written articles by bloggers in the links below:

 A Young Investor’s Diary

Forever Financial Freedom

A Young Investor’s Diary provides a super comprehensive report on Vicom that no analyst can match, which is why, I don’t even bother to write much about Vicom’s business here.  The blogger is a low-profile, financial superhero whom we call Hawkeye, because of his superhuman ability to dissect financial statements.  To get a thorough understanding of Vicom, please read Haweye’s blog.  The 2nd blog, Forever Financial Freedom has a coverage on Vicom by dividend-growth investor, B, an extremely prudent and cautious investor.  In his article he talks about an impending ‘Carmageddon’.  A large number of old cars will be scrapped within these 2 years and Vicom’s revenue from inspection might be affected.

As I voiced my worries about the slowing growth of car ownership in Singapore, B reminded me about Setsco ,(acquired by Vicom), and it’s growing revenues.  Then I suddenly remembered that Ser Jing from Motley Fool Sg mentioned about Vicom’s acquisition of Setsco as well.  Ser Jing also highlighted Vicom’s consistently growing dividends.  Sadly, Vicom lumps Setsco revenues/earnings together with the revenues/earnings from their car inspection business, so all investors out there are in the dark about Setsco’s contributions to the financial statements.  The latest figure we have about Setsco was in 2010 which can be found in Ser Jing’s Motley Fool Sg article from 2014:

Vicom: A Consistent Dividend-Growth Share with an above Average Yield. 

 

Quoted from Ser Jing’s article, because I am too lazy to write:

“Setsco was acquired by Vicom in 2003 for S$15.7 million. In that year, Setsco had brought in annual revenue of S$22.8 million. Despite competing against much bigger rivals (Setsco’s competitors include SGS SA and Bureau Veritas; in 2003, their annual revenues were approximately S$3.37 billion and S$2.75 billion respectively), Setsco had managed to more than double its top-line to S$51.4 million in 2010. Vicom’s management remains confident of Setsco’s progress and commented in the company’s latest first quarter results that “the non-vehicle testing business [referring to Setsco] is expected to grow despite the keen competition.”

“In 2010, the subsidiary had been responsible for roughly two-thirds of Vicom’s revenue and one-third of its profit.”

 

setsco testing 2

Some Thoughts

Setsco was a great acquisition needed by Vicom to sustain and grow their business besides relying on one revenue stream.  From the latest financial results, we can safely assume that Setsco is still growing.  My only concerns are – other than the slowing car-ownership trend, I would really hope that Setsco can grow beyond the Singapore market and become a more dominant player in the region.

 

Vicom is part of my portfolio because it has much less risks than most of my other stocks, consistently generates FCF and has a relatively stable recurring revenue model.  (Did I also mention that mandatory inspections provides them with unwilling but recurring customers?)  It also has a long history of dividend growth, so I am banking that their financially-prudent management can continue doing a good job in the future.  Hopefully, if all goes well, the 4% dividend yield, (at the price I bought now, $6.29, at a PE of 18), will continue growing throughout the years to come so that my yield slowly becomes 5%, 6%, 7%…. etc.

 

Scuttle-butting with Setsco

I remembered back during my construction days, I had to arrange for Setsco to come and conduct some tests on the piles I was laying.  (This test is mandatory, by the way, and the reports have to be submitted to the main con.)  2 guys showed up in overalls, proceeded to spend half a morning setting up the equipment, conducting tests, and recording the measurements.  After they left, I realised that it cost a few thousand bucks for less than half a day’s work.

 

“Man, that’s good money,” I quipped to my boss who quickly agreed.

 

Hopefully, I get to see good money flowing back into my account too.

 

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( I am more excited about this other stock than Vicom!)

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6 Comments

  1. B

    Hi Jerry

    You bought them too at the end 🙂

    How many shares did you allocate to buy for Vicom?

    Reply
    1. The Bf (Post author)

      1500 shares. Oh well, it’s much less risky than most of the stocks I am holding now. Besides, its really one of the better dividend stocks in SGX.

      Reply
  2. Meow

    wow 1500 shares. I’m buying my shares 100 at a time each month… I’m eyeing Vicom and that would mean giving up on buying 200-400 shares of others.
    New subscriber to your blog. Looking foreword to receiving the updates 🙂

    Reply
    1. The Bf (Post author)

      Hi Meow,

      It’s ok to start small. Think of your investments like bricks in a wall. They may start small, but stack the bricks up one-by-one, you will soon have a Great Wall of Money!

      Reply
  3. Jason

    Hey are you still holding on to Vicom? Any thoughts about buying now? It’s seemed the business has slowed abit

    Reply
    1. Jerry (Post author)

      Yes I am still holding on to Vicom. I am watching to see how Uber, Grab, driver-less cars and all these changes might affect the industry. The government’s push to make people own less cars may also be a cause for concern.

      However, there’s still Setsco.

      The slowdown in their business could also be due to Setsco’s exposure to the oil & gas industry.

      I think considering these risks… I would probably take a look again at a PE of 14-15.

      Reply

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