VICOM Limited (SGX: V01), Singapore’s leading provider of inspection and technical testing services, has seen its revenue and net profit (excluding one-off gains) falling in the past five years. Revenue declined from S$108 million in 2014 to S$100 million in 2018, while net profit fell from S$30 million to around S$27 million (after stripping out a one-time gain) during the same time frame.Source: VICOM Limited 2018 annual report
Will the downward trend continue, or will VICOM see a reversal in fortunes? I think it’ll be the latter.
Things picking up
Even though the five-year revenue and net profit trend are down, on a year-on-year basis for 2018, both metrics have improved. Moreover, the growth continued into 2019. For the first quarter of 2019, VICOM’s revenue improved by 4.1% year-on-year to S$25.5 million due to higher business volumes while net profit grew 4.8% to S$7.3 million.
VICOM’s revenue of S$25.5 million in the 2019 first-quarter is the second highest quarterly revenue earned by the company since the first quarter of 2016 (S$25.4 million), behind only 2018’s fourth-quarter (S$25.7 million). In other words, VICOM’s 2019 first-quarter revenue is the highest compared to all the first-quarter revenue figures since 2016. The net profit trend is similar. VICOM’s 2019 first-quarter net profit of (S$7.34 million) is the highest of all the first-quarter earnings since 2016.
So, things could indeed by picking up for VICOM. The outlook statement by VICOM in its 2019 first-quarter earnings confirms that there are better things to come for the company (emphases are mine):
“The vehicle testing business is expected to improve as a record high number of 37,000 old private cars, all of which are subjected to mandatory annual inspections, renewed their Certificates of Entitlement in 2018.”
A Certificate of Entitlement (COE) gives the right to vehicle ownership and use of roads for 10 years. Upon expiry, vehicle owners can choose to deregister their cars or revalidate their COEs for another five- or 10-year period.
With a higher number of cars that are older than 10 years on the road, there should be a faster increase in vehicle inspection revenue for VICOM, since those cars have to be inspected every year, instead of once every two years, which is the case for cars between three and 10 years old.
The Foolish takeaway
Over the past few years, VICOM’s revenue fell mainly due to lower business volumes. With the improving revenue and earnings, and a rosier outlook of late, it should indeed be a case of “better things to come” for VICOM. At VICOM’s current share price of S$6.82, it is trading at a price-to-earnings ratio of 17 and a dividend yield of 5.4%, excluding the 2018 fourth-quarter special dividend.
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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.