Sunday, January 29, 2012
Wednesday, January 25, 2012
Saturday, January 21, 2012
Thursday, January 19, 2012
While many might have heard stories of people going bankrupt from PLAYING with the stockmarket, one can choose to be a passive and defensive investor which does not requires much of your time and effort to be.
Monday, January 16, 2012
Saturday, January 14, 2012
Average of 15% profit growth for the past 6 years
Profit Margin and Net Profit Margin not expected to increase further.
Net Profit Margin of 26.6%
Average ROE of more than 20% for the past 6 years
Net Cash, No Debt
FCF/Net Profit of at least 75%
Health Dividend Payout of 60%
Further tightening of COE supply will jack up prices and thus people are likely to hold on to their car longer
Vehicle growth to be stunted until 2014 before a review of the policy though the vehicle population growth will still remain positive
Such an impact has not been fully realized as monthly trend still points towards further aging of car population
Such impact is likely to be fully realized by the end of 2013
Closure of an important inspection centre in Ayer Rajah on Aug 2011 by STAI
While the Ayer Rajah centre will not be reopened again, no one knows if STAI will open another elsewhere. However, it will take $10 million and at least a year to open a new centre
The only one in the region to have a Vehicle Emission Testing Laboratory. VETL costs $4.7 million and VICOM was lucky to have been granted $2.3 million in fund. High cost might limit number of VETL being set up
Parallel import is at its lowest point currently
Adoption of Euro V std by 2014 will lead to further regulation of vehicle emission
A long term trend of more diesel cars on the road with the government doing a test trial on the impact of DPF on diesel vehicle
For each increase in diesel car, it will take another 2 years before the increase in revenue will be realized
Thursday, January 12, 2012
The samples will be sent to M/s Setsco Services Pte Ltd for microbiological analysis and/or Health Sciences Authority (Food Safety Laboratory) for chemical and radiation analysis, depending on the type of product and analysis required."
Normally, the ratio will be one-third of the products to SETSCO and two-third to HSA.
Thus, we can conclude that SETSCO has a very stronghold in the local ITC industry with the closest competitor being TUV SUD which is one of the 8 largest ITC corporations. It has the most number of accreditations in the whole range of services and this is its competitive advantage over all other companies. Notice how many of the services are in fact interlinked. A marine company will require certification on Air Receiver, Mechanical Testing and NDT. A construction project will require a testing of concrete, followed by civil engineering testing and maybe even NDT. After that, an inspection of the building might then be required to be carried out. A huge portion of the inspection services are required regularly due to regulations, like building inspection, recalibration of devices, NDT, food export and fire safety products. SETSCO's expansion into product certification is its bid to offer a full range of ITC services downstream and upstream, which is what SGS and Intetek are doing.
With such strength, it is no wonder why SETSCO is able to attract huge projects over the years.
2005-Moog Aerospace (undergo NADCAP), reclamation material for Tuas and Jurong Island, Water quality at Marina Barrage, Jurong Shipyard, SP Power, Hyflux, ExxonMobil and Seraya Chemicals Singapore
2006- Jurong Chemical Hub
2007- Fusionopolis, Orchard Turn, Singapore Art School, Horizontal Bulk Liquid Storage Terminal (Emirate National Oil Company), Henderson Bridge and Dubai Metro Rail
2008- Resort World, MBS, Pinnacle at Duxton, Keppel Bay and Exxon Mobile
Tuesday, January 10, 2012
Vehicle inspection is actually a niche area under the ITC (Inspection, Testing and Certification) industry which offers its services to a very wide variety of products ranging from food to buildings, from marine to aerospace.
The main purpose of this post is to let readers understand the functionality and fundamental of the ITC industry. This will be more of an informative post and most of the information is gathered from the following sources:
Deutsche Bank's Investor Day report of SGS
NZB's FY10 report of SGS
Bureau Veritas Investor Relation Presentation
TUV SUD Annual Report 2010
Before I start, I will like to warn reader to exercise some discretion in discerning between facts and opinions as 2 of the sources are analyst's report while 2 of them are company's annual report. Stuffs like market structure and past information counts as fact while things like valuation are more of an opinion. I have also highlighted important points in bold.
About the business
From Deutsche Bank Report
“Inspection Services: SGS inspects and verifies the quantity, weight and quality of traded goods. Inspection takes place prior to shipment at the manufacturer’s or supplier’s premises.
Testing Services: These services test product quality and performance against various health, safety and regulatory standards. It is done by SGS in state-of-the-art laboratories close to the customer’s premises.
Certification Services: SGS certifies whether products, systems or services meet the requirements of standards set by governments, standardization bodies (e.g. ISO 9000) or by SGS customers. SGS also develops and certifies its own standards.”
Fig 1 Market Structure from Bureau Veritas
From NZB Report
“The global testing, inspection and certification remains a highly fragmented market, with less than 20% of market value estimated to be outsourced to independent companies such as SGS. SGS, Bureau Veritas, Dekra, TUV, DNV and Intertek account as the six largest players in the industry though their combined share do not exceed 15%. SGS share does not exceed 5%.”
From Deutsche Bank Report
“We estimate the global testing, inspection, and certification (TIC) industry serves a c.EUR60bn market. Out of this market c.30-35% is served by specialized and independent agencies such as SGS, Bureau Veritas and Intertek while the rest is not yet outsourced.
The industry covers all sectors (primary, secondary and tertiary), companies of various scales of operation (from small to large), and all regions. A large portfolio of services is offered, ranging from very basic (commodities quantity control) to tailored and sophisticated services(tests in laboratories, critical products / building conformity assessment). The market is still highly fragmented with only a few global players operating in multiple sectors (SGS, BV and Intertek) while the rest of the market (DNV, Dekra, TüV Süd and others) comprises mid-size organizations that often focus only on one region or on a limited number of sectors and areas of expertise. However, the industry is in a consolidation phase with large players like SGS focused on adding to their capabilities and increasing their local presence.”
Business’s Fundamental and Barrier to Entry
From TUV SUD Annual Report
“The key growth driver – not only in the CERTIFICATION strategic business segment, but also within the entire TÜV SÜD Group – is our service offering relating to the market readiness of manufacturers’ products, from development to marketing through to recycling. Here, we expect above-average growth rates in photovoltaic and in the inspection of textiles and leather goods. Overall, double-digit revenue growth is expected in ASIA PACIFIC.”
“In the ASIA PACIFIC region, revenue growth is primarily generated in the CERTIFICATION strategic business segment. However, the INDUSTRY and MOBILITY strategic business segments will increase their contribution to revenue in this region in the medium term. We see high potential for growth in the ASIA PACIFIC region, particularly in the area of environmental and energy technology.”
“In the CERTIFICATION strategic business segment, our business development in the ASIA PACIFIC region continued to be impacted by risks arising in Singapore due to higher administrative burdens, new certifications, and competition from the public sector. Furthermore, we are facing new risks in the region due to falling student numbers at the PSB Academy, tougher legislation in the field of education, and the new EduTrust certification scheme.”
From NZB Report
VTIC industry has experienced CAGR of between 5-6% over the past 20 years, nearly 10% on average in the past 10. The industry has tended to decouple from traditional macro indicators such as GDP or World Trade volume growth, though a minor cyclical dimension is still conserved (some 35% of sector growth). Resilience of VTIC activities is on the account of the structural drivers behind sector growth combined with the upstream expansion of testing services in the product value chain, resulting in a lower dependence from final demand.”
“The industry is characterized by high barriers to entry, due to the need of an international network, extensive know-how and expertise as well as the need of accreditation from government bodies.”
From Deutsche Bank Report
SGS’s customer base is relatively fragmented, i.e. the group’s top 100 clients together account for less than 15% of group sales. The contract scope is wide, ranging from basic quantity checks to very sophisticated tailor-made services involving laboratory testing.
Revenue patterns are quite predictable since a big portion is generated from recurring contracts. Customer loyalty is high as it can be expensive and time consuming to change from one provider to another. Furthermore, many services are specialized and only delivered by certain certification companies. Acquiring and processing the first certification cycle is costlier than subsequent recurring testing and certification processes.”
We believe globalization results in increased global trade flows, which are a major driver of growth for SGS, generating among other things the desire to trace the origin of goods.
Furthermore, we believe that protectionism, rather than freight forwarding companies, should be a growth driver for the sector. We believe that standards and testing are “great weapons” to be utilized by countries to avoid imports.”
Fig 2 Resilience to downturn from Bureau Veritas
Cash Flow Generation
Here's for a better understanding of 2 of the many segments in ITC industryCivil Engineering
Saturday, January 7, 2012
Thursday, January 5, 2012
From fig 1, we know that the vehicle inspection business is an extremely profitable business, with a 2010 profit margin of 37%. And vehicle inspection business is a hgue proportion of VICOM's overall profit.
Part 2B will be a discussion on VICOM's monopoly power and market share.