Vicom (SGX: V01) is an authorized vehicle inspection company in Singapore. Based on LTA (Land Transport Authority) regulation, all vehicles / cars in Singapore have to go for inspection every 1-2 years. Due to this legal requirement, yearly or even monthly cash flow of Vicom is stable and predictable (车运亨通) as number of cars in Singapore is also regulated.
It is a strong economic moat to own this car inspection license because there are only 2 companies (duopoly) in Singapore: 7 centers operated by Vicom (including 2 by JIC which is also owned by Vicom) and 3 centers owned by STA. So, Vicom has 70% monopoly of vehicle inspection business in Singapore. Inspection fee is regulated by LTA, so no difference which company to go, therefore the company has more locations would have more businesses as most drivers would choose the nearest center from home.
Despite LTA announced 0% car growth rate since Year 2018, due to high level of car COE (Certificate of Entitlement to own a car in Singapore) price, more car owners choose to renew the car COE, therefore more old cars which need annual car inspection, helping to compensate for the difference in 0% car growth. As a result, Vicom earning and cashflow are growing gradually or stable (flat), aligning to vehicle growth in Singapore.
During the 10 minutes car inspection (very efficient flow, saving time for drivers and also quick cash generator for Vicom), from one end to another end (retest may be required if fail the test), $64.20 would flow from car owner’s pocket to Vicom financial account. When this number is multiplied with 70% of all vehicles in Singapore due for inspection, it is tremendous amount of cash. The Capex (difference of Operating Cashflow and Free Cash flow) is limited, only in Year 2018, due to investment in new Bukit Batok inspection center, there was less free cash flow in that year. Vicom also has non-vehicle testing division (SETSCO) but business is not as predictable as vehicle inspection business.
Vicom has been very generous in dividend payment, even it is not a REIT but having similar policy to pay 90% of profits as dividend back to shareholders (only difference is Vicom has the right to change this policy as dividend amount is not regulated by law as for a REIT). In fact, since Year 2017 to 2019, Vicom has “over” paid 120% of its profits as dividend (possible as having retained earnings from the past few decades of business). Current dividend yield of Vicom is about 5%.
Parent company, Comfortdelgro (SGX: C52), has about 2/3 ownership of Vicom, therefore could enjoy 2/3 of stable cash generated by Vicom through dividend payment. Despite taxi business of Comfortdelgro has been in crisis for several years with new challenger of Grab Taxi (disruptive technology) and also during Coronavirus infection period in year 2020 (less passengers), Vicom has been serving as cash cow for Comfortdelgro, providing stability to its business.
Due to consistent dividend payment with a very stable business (protected by LTA car inspection requirement), Vicom has been a favourite for some dividend stock investors. Due to more demand than supply (for the cash cow with stable dividend payment), Vicom share price has been growing for decades, after share price adjustment, growing from about $0.40/share to $8/share over the past 20 years, going up by 20 times! It means if initial investment capital was $1000, it would become $20,000 (excluding 4-6% yearly dividend yield for 20 years).
However, past success records in both business and share prices do not guarantee future performance as stock market is forward looking. Therefore, even an investor may be interested in Vicom for investing from now, has to learn to “inspect” giant stock, only a giant stock (applying Dr Tee’s giant stock criteria) in certified after yearly review, then an investor could continue to hold, even may not need to sell in future stock crisis. In short, Vicom inspects Singapore cars to make money and investor has to inspect global giant stocks to remain profitable.
So, despite slower growth in business but due to it stability and predictability, Vicom is also a growth stock, suitable for long term investing. A smart investor would apply Dr Tee’s Optimism Strategies to acquire Vicom at low optimism < 25% (currently is about 15% Optimism), suitable for both dividend investing (moderate 4-6% dividend yield record over the past decade, a strong consideration during crisis time) and growth investing (buy low optimism & hold long term for capital gains).
Assuming the worst case scenario that Coronavirus may affect the world / Singapore for more than 1 year (before a vaccine is developed), with over 50% people lockdown at home for over 1 year, resulting in Great Depression for a few years, number of cars in Singapore are unlikely to drop even by 10% base on natural demand and supply (unless it is required by LTA). However, during global financial crisis, it is possible for Singapore car COE price to drop (historical low was $1, could be as high as nearly $100,000) to support the current number of cars. A smart investor may also apply Optimism Strategies to buy Singapore car with low optimism COE during global financial crisis (current COE price of about S$30,000 is only moderate optimism level, not yet a good time for car shopper but $1 historical low COE price may not happen again due to open bidding system).
So, some readers may be tempted to invest in Vicom right away (sharing in this article is for educational purpose, please make your own analysis, in case anyone may think Vicom could go bankrupt one day if LTA may announce that Singapore vehicles no longer need inspection anymore). During the recent global stock crisis in Mar 2020, Vicom share price fell by about 20% (more defensive compared to 30 STI blue chip stocks fell by about 30%), currently recovering more than half of the correction. An investor has to consider both risks and rewards with strategies aligned to own unique personality, not simply a buy after reading this article.
If a smart investor wants to have a complete 100% monopoly of car inspection business (buy a stock means in partnership with company doing business together), then may also consider STA which controls remaining 30% of car inspection in Singapore. STA could be invested partially through parent company, ST Engineering (SGX: S63), another dividend giant stock in Singapore. Comparing with Vicom, ST Engineering is equally strong for dividend investing but much slower for growth investing (car inspection is not the only business nor main business for ST Engineering).
Similarly, parent company of Vicom, Comfortdelgro, is also a giant dividend stock (dividend yield is 6.5% but a question mark if this is sustainable this year when fewer people take taxi for 6-12 months) but slower growth than Vicom. Comfortdelgro has another subsidiary, SBS Transit (SGX: S61), which is only a marginal dividend giant stock with bus and MRT businesses, not as strong as Vicom. Vicom has the characteristic of midfielder with 2 main investing goals of passive incomes (dividend) and capital gains.
Vicom is a small size stock, but it is a giant, much better than most 30 STI index component stocks including Comfortdelgro (investor has to focus only on giant stocks for investing):
DBS Bank (SGX: D05), Singtel (SGX: Z74), OCBC Bank (SGX: O39), UOB Bank (SGX: U11), Wilmar International (SGX: F34), Jardine Matheson Holdings JMH (SGX: J36), Jardine Strategic Holdings JSH (SGX: J37), Thai Beverage (SGX: Y92), CapitaLand (SGX: C31), Ascendas Reit (SGX: A17U), Singapore Airlines (SGX: C6L), ST Engineering (SGX: S63), Keppel Corp (SGX: BN4), Singapore Exchange (SGX: S68), Hongkong Land (SGX: H78), Genting Singapore (SGX: G13), Mapletree Logistics Trust (SGX: M44U), Jardine Cycle & Carriage (SGX: C07), Mapletree Industrial Trust (SGX: ME8U), City Development (SGX: C09), CapitaLand Mall Trust (SGX: C38U), CapitaLand Commercial Trust (SGX: C61U), Mapletree Commercial Trust (SGX: N2IU), Dairy Farm International (SGX: D01), UOL (SGX: U14), Venture Corporation (SGX: V03), YZJ Shipbldg SGD (SGX: BS6), Sembcorp Industries (SGX: U96), SATS (SGX: S58), ComfortDelGro (SGX: C52).
“Crisis is Opportunity” if a company business is stable or growing while the share prices fall significantly due to market fear. Monopoly stock in a stable or growing sector with empowerment by local authority would give unfair advantage to a business. There are over 1500 global giant stocks, some are stronger growth than Vicom and/or better dividend yield than Vicom. “What to Buy” does not mean “Now to Buy”, positioning on a giant stock requires comprehensive LOFTP (Levels 1-4, Optimism 0-100%, Fundamental, Technical and Personal Analysis) strategies.
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