Singapore (27 July 2020) – If you are looking for a Shariah-compliant counter that offers above average returns in the long term, SGX-listed Vicom Ltd might just fit the bill.
The best performer of SGX’s Industrials sector earlier this year offers computerised and integrated vehicle testing system ensuring vehicles’ roadworthiness.
A subsidiary of Comfort Delgro, Vicom was first listed on SGX in 1995 at less than SGD 1/share. Price of the shares rose over the years and earlier this year surged to a record high of over SGD 9/share before giving back some gains on the back of the Covid-19 pandemic.
The shares also underwent a share-split making the counter an even more attractive and affordable for long term retail investors. For every one share of Vicom an investor held, it became four shares at a quarter of the price. The share split was completed and the new shares listed on the 12th June 2020.
It closed trading today at SGD 2.15/share down 1 cent.
Incorporated in 1981, the company says it continues to stay on the cutting edge of testing and inspection technology. Today it has seven testing centres located island wide.
Source: Yahoo Finance – Vicom’s long term chart showing the price after the share split
As prices of Certificates of Entitlement, or COEs, skyrocketed in recent years, many vehicle owners in Singapore are choosing to renew their vehicle COEs for another 5- or 10-years once the COEs reach expiry at the 10th year, instead of scrapping their cars and buying new ones.
This trend is benefiting Vicom as it is assured of even more income going forward. Vehicles older than 10 years old will need to be inspected for their roadworthines annually, compared with brand new vehicles that only need check ups biennally. Vicom controls 75% of the vehicle inspection market in Singapore. In 2019, its seven centres inspected 462,718 vehicles.
Vicom’s management have announced they expect the vehicle testing business to remain stable as over 39,000 private cars renewed their COEs in 2019 and will thus be subjected to compulsory inspection yearly.
Its non-vehicle testing business, operated by wholly-owned subsidiary SETSCO Services, will however be challenging due to the current economic activity amid the COVID 19 pandemic. SETSCO provides inspection, consultancy and training services in sectors such as aerospace, marine and offshore biotechnology, oil and petrochemicals, building construction and electronics manufacturing.
Strong Balance Sheet Supports Dividend Payouts
Notwithstanding the impact of Covid 19 pandemic on its non- vehicle inspection, the Group is sitting on a pile of cash. The company has been generating positive cash flow for the past 10 years while capital expenditure remains low at about SGD 5m a year.
Vicom’s net cash position rose from SGD 49.1m in 2010 to SGD107.5m in 2017. It has fallen slightly since then as the company raised its dividend payout ratio to about 120% of its cash reserves. Its debt-to-asset ratio is lower than industry average. Vicom has always maintained its generous payout policy to shareholders. It paid off most if not all the profits as dividends as it will continue to collect cash in following years.
Total Dividends Per Ordinary Share
| Year | SGD Cents |
| 2010 | 9.0 |
| 2011 | 17.6 |
| 2012 | 18.2 |
| 2013 | 22.5 |
| 2014 | 27.0 |
| 2015 | 28.5 |
| 2016 | 26.5 |
| 2017 | 36.0 |
| 2018 | 45.25 |
| 2019 | 38.40 |
Source: Vicom
In the last 10 years, the annual dividend payment was 9 cents in 2010, rising to 38.40 cents last year, working out to average growth payout of 30% a year.
It is even remarkable to note that in the intervening years 2014 to 2018, dividends surged from 27 cents to 45.25 cents, up 68%.
Resilience
Vicom’s shares are tightly held with few trades done on an average day. A long term small investor doesn’t have to bother about market volatility. Narrow price movements have been Vicom’s hallmark for the last 20 years.
The long term chart shows a strong uptrend with annual price lows of around 10%-15% off their highs even during crashes and bear markets. This should be another assurance and boosts small investors’ confidence with regards the safety of their investment.
There is little reason for small investors to sell off the shares as even during bear markets and crashes, Vicom would outperform the market.
Buy Opportunity At Next Market Correction
As the stock market is expected to go through another major correction – similar in scale as the 30% crash seen in March — in the next 6-12 months, investors should watch out closely for a long term opportunity to buy Vicom.
During the recent Covid-19 market crash Vicom managed to keep its share price fall from an unadjusted price of SGD 8.50 to SGD 6.80, down 20% (before share split). The adjusted price for the share split at the point of writing on July 23 2020 is SGD 2.16. The lowest point reached March in adjusted terms was SGD 1.70/share.
Considering that investors who had bought the shares at their highest points in the last 20 years would still be enjoying dividend yields of at least 2%-3% per year, buying the stock around SGD2/share in coming months would be a safe move.-/-
Disclaimer: Najeeb Jarhom is an independent investment consultant and contributes to www.halal-universe.net on a regular basis. He was a research manager at AmFraser Securities from 1989 – 2011; UOB Securities’ head of research in 1987 – 1989; a financial journalist with the Straits Times and Business Times in 1981 – 1987. He was also with the Monetary Authority of Singapore from 1976 – 1981, where he monitored and analysed the economies of the US and Canada and assisted in the management of MAS’ equity and bond portfolios in the US, Canada and the UK. Najeeb offers investment advice to individuals seeking to build investment portfolios. The information in this article, however, is not a recommendation to buy the stock. Readers are to consult their respective financial advisers. The views, opinions and information expressed in this article are those of Najeeb’s and do not necessarily represent the views of www.halaluniverse.net.
