Profits Rise At Cash-rich Vicom

vicom logoIn Singapore, car owners not only have to pay for the right to buy a car through a Certificate Of Entitlement (COE) they also have to get their cars inspected regularly to ensure their vehicles are in tip-top condition.

Therefore, many car owners should be familiar with VICOM (SGX: V01), the largest technical testing and vehicle inspection company in Singapore. Of the nine vehicle inspection centres in Singapore, seven are owned by VICOM and two are owned by STA, which is a subsidiary of ST Kinetics.

VICOM said this week that second-quarter revenues jumped 11 S$26.6m while profits increased 8.3% to S$6.9m.

Although their results are solid, the key highlight was the company’s robust financial position. VICOM is cash-rich with over 46% of its balance sheet in cash and no debt.

In addition, its net profit margin stands at around 26%. This shows that VICOM probably has a strong moat around its business in order to produce such strong margins.

A quick look at their cash flow statement reveals yet another impressive attribute. VICOM requires little capital expenditure to maintain its business. The only major cash outflow was allocated to “purchase of vehicles, premises and equipment funding from Land Transport Authority”, representing just 10% of net cash generated from the operations.

VICOM has proposed an interim dividend of 8 cents for this quarter, on top of the 10.7 cents paid on 30 April 2013. This brings the full-year pay out to 18.7 cents, which is the highest since 2007.

At Wednesday’s closing price of S$4.76, the shares translates to a dividend yield of 3.93% and the company is valued at 15 times earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.