VICOM Limited (SGX: V01) is Singapore’s leading test and inspection services centre. The group was incorporated in 1981 and listed on the Singapore stock exchange in 1995, and has, over the years, greatly expanded its range of services to include testing and inspection in fields such as mechanical, biochemical and non-destructive testing. VICOM is a subsidiary of ComfortDelgro Corporation Limited (SGX: C52), the world’s second-largest transport company.
VICOM’s business mainly centres on conducting vehicle inspections as mandated by the Land Transport Authority (LTA) and has a dominant market share in Singapore of more than 75%. The other major player in vehicle inspection is STA Inspection, which is a member of Singapore Technologies Engineering Ltd (SGX: S63) and has four inspection centres around the island.
In October 2017, the government announced that the vehicle growth rate for Singapore will be cut to o% from a previous 0.25% for all passenger cars and motorcycles. This rate will be reviewed again in 2020, but the government is likely to keep it at zero as a car-lite society is being encouraged. This move is likely to reduce the total number of cars on the road and impact VICOM’s car inspection volumes.
However, here are three ways that VICOM can continue to grow its business further despite the zero-growth rate for the car population.
1. More frequent inspections for older cars
As a result of the zero-growth rate policy mandated, the supply of Certificate of Entitlements (COEs) for new cars would also correspondingly fall. This has caused many Singaporeans to hold on to their cars past the tenth-year mark and to choose to renew their COEs rather than to scrap their vehicles.
As the vehicle population gets older, inspections also need to be conducted more frequently. LTA’s website mentions that for a new car, an inspection is required when the car reaches three years old. Subsequently, it needs to be inspected once every two years until the 10th year. Cars above 10 years old need to be inspected once a year. VICOM should, therefore, see a rise in car inspections for older cars even though the total vehicle population is not growing.
2. Increase in inspection fees
Source: VICOM’s website
VICOM’s latest inspection fee list is shown in the table above, and for private hire cars, it is S$64.20 per inspection. Investors should note that VICOM had, in 2017, announced a fee hike of S$2 for vehicle inspection and chassis-dynamometer smoke test for smaller and larger vehicles. There has not been a fee increase before this since 2007.
Should costs rise further for the group, it could justify a further fee hike that would instantly flow through to its bottom-line.
3. Deepen abilities for non-vehicle testing
VICOM’s non-vehicle testing division is parked under its unit SETSCO. During 2018, SETSCO introduced several new test services such as Small Area for Exposure Radiography, which enables testers to conduct radiographic work during the day. It also broadened its scope in the certification space as SETSCO became one of three assessment bodies appointed by the Infocomm Media Development Authority to conduct an independent audit of firms who wish to apply for the Data Protection Trustmark Certification.
SETSCO should continue to deepen its abilities and scope in order to include even more testing and inspection services for a wider range of industries. This can help to diversify its revenue sources and also mitigate weaknesses in certain industries (e.g. oil and gas).
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of VICOM Limited. Motley Fool Singapore contributor Royston Yang owns shares in VICOM Limited.
Motley Fool Singapore 2019