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VICOM Limited’s 2018 Second-Quarter Earnings: Dividend Hike

VICOM Limited (SGX: V01) is a leading provider of technical testing and inspection services in Singapore. Yesterday, the company announced its financial results for the second quarter ended 30 June 2018.

Financial highlights

Revenue for the latest quarter grew 2.4% year-on-year to S$24.7 million, up from S$24.1 million a year ago. VICOM said the rise in revenue was due to higher business volumes.

Total operating costs increased by 1.3% to S$17.3 million. Consequently, operating profit went up 5.1% to S$7.4 million.

Net profit rose from S$6.1 million last year to S$6.2 million in the 2018 second quarter, climbing 2.9%. As a result, basic and diluted earnings per share for the latest quarter was 7.05 cents, up from 6.85 cents in the corresponding quarter last year.

As of 30 June 2018, VICOM had S$97.9 million in cash and cash equivalents with no debt. In comparison, as of the end of 2017, it had S$107.5 million in cash and cash equivalents with zero borrowings. The fall in cash balance was primarily due to higher payment of dividend, which was offset by profits generated from operations.

Operating cash flow for the reporting quarter fell by 13.6%, from S$6.0 million to S$5.2 million, mainly due to negative working capital changes. With capital expenditure increasing from S$746,000 to S$780,000, VICOM’s free cash flow fell from S$5.2 million to S$4.4 million.

An interim dividend of 13.46 cents per share was declared, a 2.6% increase from 13.12 cents dished out last year. The latest dividend payout, which is more than the free cash flow per share for the quarter, could suggest that VICOM does not see the need for the extra cash on its balance sheet.

Outlook

Looking ahead, VICOM said:

“The recent fall in Certificate of Entitlement (COE) prices to their lowest levels in nearly a decade has resulted in the premature deregistration of cars with higher COEs before the 10-year mark. This is expected to affect the demand for the vehicle testing business. The non-vehicle testing business continues to face intense competition but is expected to remain stable.”

The above is a change from its 2018 first-quarter outlook where the company mentioned (emphasis mine):

“The vehicle testing business is expected to improve and the non-vehicle testing business is expected to remain stable.”

The Foolish takeaway

VICOM posted growth in its revenue and net profit for the 2018 second-quarter. Its cash balance and free cash flow, though, declined. What’s more worrying to me is the sudden change of tack in VICOM’s outlook. I would be keeping a lookout for the COE price changes in the coming months.

VICOM is currently selling at a trailing price-to-earnings ratio of around 20 and has a trailing dividend yield of 5.9% (as of the closing price of S$6.19 yesterday).

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