Tuesday, October 24, 2017

Vicom Revises Inspection Fees W.E.F 1 Nov 2017

You might have recalled I re-initiated a position back in Vicom just last month (See here) so when someone alerted me today that they were revising their fees I was interested to look at it.

This wasn't yet officially announced in the sgx announcement so some vested shareholders might miss the news.

New revised fees w.e.f 1 Nov 2017
As you can see from the breakdown, the revised fees aren't very significant from a car owner perspective in terms of dollars and sense. In fact, it's probably just enough to cover an incremental cost of the overhead due to inflation next year. They've been very conservative in raising the price.

This news came about after LTA announces that it will cut the growth of vehicle on the street to 0% from FY18 onwards. What this means in terms of impact is probably more COE being extended after 10 years which will boost the more regular annual inspection (instead of once in two years).

With taxi fleets continuing to shrink at a single digit rate due to an oversupply market, Vicom's inspection fees will also take the hit since taxi fleet goes for much more regular inspection on a semi-annual basis.

The big changes if any from LTA, will be regulating the same policy changes to the private hire cars on the street to a more frequent inspection. This will be a key driver to Vicom's inspection business.

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  1. 0% growth will be bad for Vicom in the longer term.

    The most important driver of the frequency of inspection has always been the COE prices. When COE prices are high, people will hold on to their current car longer.

    There is also some degree of cyclicality to the frequency of inspection as we have seen the % of vehicles from 7-10 years falling off rapidly. The cliff will continue to fall off over the next 2 years, before it will rebound.

  2. Hi anon,

    I disagree and agree.

    The period between 2006-2008 where COE was cheap was because LTA calculated wrongly and allowed the car population to grow. Then after that they had to reduced the increase of car population which lead to COE increase again.

    Now with 0% growth, the chance of COE increases is way higher than COE decreasing.

    N when COE increases, pple will tend to hold on to their cars. Which means the amount of COEs that can be issued out will be reduced even more.

  3. Isn't 0 growth means same number of cars.

    So with same number of cars but increased frequency of inspection means vicom's revenue will increase ?

  4. People are already holding on to their cars much longer until 10 years, which is why we are seeing the spike in de-registration since 2015.

    The age-distribution profile is no longer a normal distribution, but an inverse normal distribution. De-registration will remain high for next 2 years. https://www.lta.gov.sg/content/dam/ltaweb/corp/PublicationsResearch/files/FactsandFigures/M01-03M-Age.pdf

    0% growth means that long term average growth will be 0% over the cycle of de-registration peak and trough.


  5. Hi B,

    What are the competitors of vicom do with regards to these news? It will be good to know what is happening in the industry and how severe are the after effects are on the ground.

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