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.

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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 Sudhan P owns shares in VICOM Limited.