Tight COE supply bodes well for Vicom

I read an article in the Straits Times today that the tight COE supply might make the sales of used cars to hit a 10-year high in Singapore.

In the first quarter of 2011, 15,441 cars changed hands and this figure is more than twice the 6,896 new cars sold (click on hyperlink to see figures by LTA). The number of used-car transactions is likely to hit a 10-year high at this rate. Some industry players predict that the growth will continue over the next two years due to the short supply of COEs. This has driven up premiums and hence, the prices of new cars. The number of COEs is expected to hit rock-bottom between this year and 2013.

I feel all the above figures bode well for Vicom as they derive income from vehicle inspection of motor vehicles. Motorcars three to ten years of age have to go for vehicle inspection biennially. Looking at the age distribution of motor vehicles, the age of cars between three to less than six years makes around 53%, the bulk of the percentage. I’m sure this particular trend will continue to increase in the coming years with the tight COE supply. Vicom, having a duopoly in the vehicle inspection arena, is in good stead to capitalise on this trend.

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6 thoughts on “Tight COE supply bodes well for Vicom

  1. Hi Mr. financiallyfreenow,

    I have started to take notice of this stock recently.
    Care to make an analysis of this stock for this year?
    What are your opinions of their performances for FY2012?

    Thanks in advance

    • Hi yangstrikes,

      Thanks for visiting my blog and for your comments!

      Vicom has really run up too much and in my honest opinion, it’s about fair value now. Dividend yield is at 2.9%. P/E is at 17.6 and P/B is at 4. At current price, margin of safety is almost non-existent.

      • Hi financiallyfreenow,

        But dun you think they are still good for further share increment?
        Their quality of earnings is more than 1.0 for the pass 4 years, which is hard to come by for companies listed in sgx. Also, their Gross profit margin has been steadily increasing year after year.
        For your 2 cents’ worth, what do you think will be the best entry price?

        Thanks

      • Hi yangstrikes,

        The price might go up further or might come down. It might go up if more people are fighting to get a piece of the business. It’s a solid business nonetheless. Sorry I don’t give such entry prices. Hope you understand. But if I were you, I will not enter at the current price. It’s close to fair value as per my intrinsic value calculations. I might be wrong though.

      • Hi financiallyfree now,

        So in your own opinion, fundamentally, do you think this business is sound (i.e. does it have an economic moat in their industry) ?

        Thanks
        yangstrikes

      • Hi yangstrikes,

        Yes, I have no doubt the business is sound and that the moat is wide. 7 out of 9 inspection centres in Singapore are owned by Vicom. Government regulations makes this moat intact too. Cheers!

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