Are These Signs That There Are Better Things To Come For VICOM Limited?

VICOM Limited (SGX: V01) is the leading provider of technical testing and inspection services in Singapore.

Recently, the company announced its financial results for 2017. During the year, VICOM’s revenue declined by 4.1% from S$101.2 million in 2016 to S$97 million. As a result, the company’s profit slumped 5.9% to S$26.5 million. VICOM fingered “lower business volumes” for the decline in its top-line.

Taking a slightly longer-term look, things are not looking good for the company too. The following shows highlights of the company’s income statement from 2015 to 2017:Source: VICOM Limited’s website

The company’s profit of S$31.4 million in 2015 was a record. And since then, its bottom-line had fallen to where it is now.

Due to the hit to its profit, VICOM’s stock price has declined too, falling from a peak of S$6.78 seen in late-April 2015 to a low of S$5.59 seen near the end of 2016. The peak-to-trough fall translates to a decline of 17.6%. It’s not a catastrophic loss, but still noteworthy nonetheless. As of the time of writing, VICOM’s stock price has recovered to S$6.01.

Can the company’s business turn around anytime soon? To help answer the important question, let’s take a look at VICOM’s outlook statements from 2014 to 2017.

In 2014, when its revenue hit a record of S$108.2 million, the company said (emphases 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 even though competition remains keen.”

In 2015, when revenue fell by 1.3% to S$106.7 million, it commented (emphases mine):

“Demand for vehicle testing services is expected to be lower as more vehicles will be deregistered during the year. Demand for non-vehicle testing services is expected to fall with the slow down in some pertinent industries.”

In 2016, when revenue came in 5.2% lower at S$101.2 million, VICOM shared (emphases mine):

“Business conditions are expected to remain difficult for both the vehicle and non-vehicle testing businesses. The vehicle testing business will continue to face challenges posed by the high de-registration rate although this will be offset partially by an increase in the number of Certificate of Entitlement (COE) revalidations. The non-vehicle testing business will continue to weaken with the general slowdown in the industries that we serve.”

Finally, in 2017, when its revenue declined by 4.1% to S$97 million, it said (emphasis mine):

“The vehicle and non-vehicle testing businesses are expected to remain stable.”

So, VICOM’s outlook for its business’s demand went from “moderate/grow” in 2014, to “lower/fall” in 2015, then to “difficult” in 2016, and finally to “stable” in 2017. This might be a hint to investors that the worst could be over with VICOM.

Moreover, declining private car de-registration numbers released by the Land Transport Authority may also be a positive for the company. Simply put, a lower de-registration rate means that there will be more cars on the road that are three years or older; cars of that age need to go for inspection. In 2017, a total of 80,788 cars were de-registered, down from a peak of 88,317 cars in 2016.

Lastly, in what can be perceived to be a major sign of confidence from management that there is some light at the end of the tunnel, VICOM increased its total dividend for 2017 by 36% year-on-year to 26.5 cents.

It would be interesting to watch how 2018 pans out for the company.

Meanwhile, there are 28 surprising and important things we think every Singaporean investor should know--and we've laid them all out in The Motley Fool Singapore's new e-book. Packed with information and insights, we believe this book will help you be a better, smarter investor. You can download the full e-book FREE of charge--simply click here now to claim your copy.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in VICOM Limited.