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Vicom Limited’s Latest Earnings: Revenue-Growth Jams on the Brakes

Vicom Limited (SGX: V01) released its fiscal second-quarter earnings yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

Vicom is a leading provider of technical testing and inspection services with operations primarily in Singapore. The company is majority-owned by land-transport giant ComfortDelGro Corporation Limited  (SGX: C52).

You can catch up with Vicom’s fiscal first-quarter earnings here.

Financial highlights

The following’s a quick take on Vicom’s latest financial figures:

  1. Revenue came in at $27.3 million for the second-quarter, up a mere 0.1% from the same quarter a year ago.
  2. Even though revenue for the test and inspection firm stalled, net profit for the second-quarter had increased by 4.8% year-on-year to $7.6 million. Vicom’s bottom-line had benefitted from lower operating costs and higher interest income.
  3. Consequently, earnings per share (EPS) went up by 4.8% from 8.16 cents in the second-quarter last year to 8.55 cents in the reporting quarter.
  4. Cash flow from operations came in at $8.8 million for the second-quarter of 2015 with capital expenditures clocking in at just $727,000. The low capex gives Vicom a healthy $8.0 million in free cash flow, up slightly from the free cash flow of $7.85 million seen a year ago ($9.2 million in cash flow from operations and $1.3 million in capital expenditures).
  5. As of 30 June 2015, Vicom had $90.5 million in cash and equivalents and no debt. This is an increase from the net cash balance of $80.1 million that was seen a year ago.

In short, Vicom’s top-line growth had stalled but its bottom-line rose despite the fact. The test and inspection outfit still has a very strong balance sheet and generated healthy free cash flow which can provide support for the firm’s dividend.

Vicom’s board of directors had declared an interim dividend of 8.75 Singapore cents for the reporting period, unchanged from a year ago.

Operational highlights

In contrast to previous quarters, Vicom’s management team had a more dour outlook for the future (emphasis mine):

“Demand for vehicle testing services is expected to moderate as more vehicles are expected to be deregistered during the year. Demand for non-vehicle testing services is expected to fall as growth in some industries slows.”

For perspective, the following comment is what appeared in Vicom’s earnings release for the first-quarter of 2015 (emphasis mine):

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

This is what management wrote in the second-quarter of 2014 (again, emphasis mine):

“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 despite the keen competition.”

As you may have guessed, news of the fall in demand for Vicom’s non-vehicle testing business given in the latest earnings release is a change of tone which has not occurred for a while. With the higher rate of vehicle deregistration affecting Vicom’s vehicle testing business, there might be a few tough quarters ahead for Vicom.

Foolish summary

At its closing price yesterday of $6.13, Vicom traded at 17.6 times its latest trailing earnings and carried a trailing dividend yield of 4.4%.

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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 owns shares in Vicom Limited.