Both VICOM Limited (SGX: V01) and SBS Transit Ltd (SGX: S61) are substantially owned by one of the world’s largest land transport company, ComfortDelGro Corporation Ltd (SGX: C52). As of 5 March 2018, ComfortDelGro had a 67.1% stake in VICOM and a 74.6% stake in SBS Transit.
Even though both VICOM and SBS Transit are involved in different business, I decided to see which company might give investors a better bang for the buck since they are both linked to the same parent.
Introduction of the Two Firms
VICOM provides technical testing and inspection services mainly in Singapore, while SBS Transit provides bus and rail services solely in Singapore. Under SBS Transit’s rail services business, the company operates the North East Line, the Downtown Line, and the Sengkang and Punggol Light Rapid Transit.
The table below shows the market capitalisation and revenue for the two firms. Market capitalisation is as of the closing share prices on 4 October 2018.
Do note that all figures quoted in the tables that follow are for the full year ended 31 December 2017 (FY2017) for both companies, unless otherwise stated.Source: SGX StockFacts and company annual reports
Round 1: Profitability
In this first round, I will look at the profitability of the companies in terms of net profit margin and return on equity (ROE). The ROE figure reveals how efficient a company’s management is in turning every dollar of shareholders’ capital into net profit.Source: Company annual reports
For every dollar of revenue created by VICOM, around 27 cents were generated as earnings, but for SBS Transit, every dollar of revenue only gave four cents in profit. VICOM also has a higher ROE than SBS Transit.
Round 2: Growth
In this second round, I will compare the compounded annual growth rate (CAGR) of revenue, net profit and dividend of the two firms for the past five financial years. Companies that can grow their sales and profits steadily over time should also see their share price rise.Source: Company annual reports and author’s calculation
SBS Transit has trounced VICOM in all aspects. SBS Transit’s business has improved substantially after transiting to the Bus Contracting Model (BCM). To learn more about the BCM, you can check out the article written by my colleague, Chin Hui Leong, here.
Winner: SBS Transit.
Round 3: Valuation
As investors, it is essential to focus on the value of the business and not on the daily changes in the stock price.
We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies. The values below are as of the closing prices on 4 October 2018.Source: SGX StockFacts and author’s calculation
SBS Transit has a lower PE and PS ratio than VICOM. However, VICOM has a higher dividend yield than SBS Transit. Overall, though, SBS Transit triumphs over VICOM with its better valuation.
Winner: SBS Transit.
The Foolish Bottom Line
The final score is 2-1 to SBS Transit, as it has triumphed over VICOM in two out of the three rounds.
However, we have yet to look at other important aspects of SBS Transit, such as its balance sheet strength, ability to generate free cash flow, future growth prospects, and so on. Potential investors interested in SBS Transit should conduct more in-depth research before investing their money. This quick comparison serves as a useful starting point and helps take some heavy-lifting off an investor’s back.
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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 and SBS Transit Ltd. Motley Fool Singapore contributor Sudhan P owns shares in VICOM Limited and SBS Transit Ltd.