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VICOM Limited’s Latest Earnings: Boringly Good

VICOM Limited (SGX:V01) reported in its fourth quarter earnings yesterday. The reporting period was for 1 October 2014 to 31 December 2014. VICOM is a leading provider of technical testing and inspection services with operations primarily in Singapore. The test and inspection outfit is majority-owned by land-transport giant ComfortDelGro Corporation Limited (SGX: C52).

You can catch up with VICOM’s third quarter earnings here.

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Financial highlights

Here’s a rundown on the financial figures:

  1. Overall revenue for the fourth quarter rose by about 3% year on year to $27 million. This was driven by higher business volume. VICOM finished the year 2014 with $108.2 million, 3% above 2013’s revenue of $105 million.
  2. Net profit for the fourth quarter increased by 5.4% compared to last year’s quarter to come it at $7.4 million. For the full year, profit attributable to shareholders came in at $30.1 million, a good 6% above last year. The profit increase was mainly due to lower costs from contract services.
  3. Earnings per share (EPS) followed suit with a 5.1% from 8.31 cents in the fourth quarter last year to 8.73 cents in the past quarter. VICOM’s 2014 EPS was $34.01 cents which was a 5.8% growth from last year’s EPS of $32.15.
  4. Cashflow from operations came in at $9.5 million for the fourth quarter of 2014 with capital expenditure clocking in at $1.7 million. The low capex gives Vicom a very healthy $7.8 million in free cash flow. For the full year, the test inspection outfit had a healthy $32.6 million in free cash flow.
  5. As of 31 December 2014, the group had $91 million in cash and equivalents and no debt. This is a net increase in cash of $12.5 million from a year ago.

In short, Vicom’s revenue and profit has continued to chug along – not unlike the previous two quarters this year. The test and inspection outfit boasts a healthy balance sheet, with copious amounts of free cash flow.

Operational Highlights

For the quarter, the management team provided the following outlook:

“The demand for the vehicle testing services is expected to moderate as more vehicles are expected to be deregistered in the year. The non-vehicle testing business is expected to grow even though competition remains keen.”

Vicom is typically light on the operational details of its business on a quarter to quarter basis. The business of Vicom can be divided to two major buckets. The first bucket is the vehicle inspection, and testing services. Car owners may be familiar with this, as most of them would be required to sent their vehicles for inspection at least once a year. Future growth in the first bucket may be limited by the number of cars in Singapore, and Vicom’s ability to raise prices for inspections.

The second bucket, which is provided by its SESTCO subsidiary, is involved in providing testing, calibration, inspection, certification, consultancy, and training services to a wide range of industries. This bucket is what the management team refers to as the “non-vehicle testing business”. In contrast to the first bucket, the non-vehicle testing is the space where Vicom can drive revenue growth in the foreseeable future. However, as the management team notes, competition is more keen in the non-vehicle testing.

Foolish summary

At its closing price yesterday of $6.40, Vicom traded at around 18.8 times trailing earnings with a dividend yield of 4.2%. With the current health of the balance sheet and abundant free cash-flow, it would be reasonable to expect that the dividend payout will remain at least at the current levels.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.