Singapore Budget 2012 and VICOM

Yesterday, we have discussed about how SBS Transit is going to be negatively impacted by the implementation of the Budget for the new fiscal year. VICOM, however, stands to gain from what might be a loss to SBS.

Under the Bus Services Enhancement Fund, 800 buses will be added by 2016 of which 550 will be funded from the government. Now, we can understand why it took nearly 20 years for the PTOs to add 800 buses in the past. With more buses entail more inspection revenues for VICOM, so we shall see how much of a revenue will be added.

As public buses, they have to be inspected every 6 months paying $68 per inspection. Being diesel operated, they will also have to undergo CDST for $26. This gives us a total of $188 per bus added per year. 800 buses = $150400 annually. While this might represent a very small sum given VICOM's $25m profit, it is a form of recurring income that they will enjoy.

While the bus might be a small bonus rewarded to VICOM, what's more important is the continued change in attitude of the government towards diesel vehicle, that will signify long-term income growth for VICOM.

http://sgyounginvestor.blogspot.com/2012/01/vicom-part-2b-market-share-of-vehicle.html

In the above post, I have discussed about how the government has been slashing taxes for diesel car and how diesel car population has been growing. Here's the latest figure

Before 2009 - <20

2009 - 43

2010 - 138

2011 - 346

31/01/2012 - 374

Under the latest policy change announced, the annual Special Diesel Tax will be cut by 68% to around $320 - $500, which make it on par with petrol car driver whose petrol pump prices has been incorporated a duty of 41-44 cents per litre of fuel. As quoted from The Straits Times:

"Singapore will adopt the Euro V standard for diesel vehicles in 2014, and the slashing of the Special Diesel Tax is meant to encourage an earlier adoption of newer and cleaner diesel technologies, the minister explained."

This confirms my speculation that diesel vehicle will continue to grow until it accounts for a significant proportion of the vehicle population. It will definitely not be surprising if diesel vehicle population hit 1000 by end of the year given its growth rate, as diesel is a much more cost-effective and efficient fuel than petrol. All this will imply an extra $17 in inspection revenue for every diesel vehicle in the long term.

And with this, it shall lead to our Vehicle Emission Testing Laboratory, the one and only in the whole of SE Asia region and one of the world's few to be able to test for Euro V standard. As mentioned above, the special tax only applies to Euro V compliant diesel car and not to any of the diesel car out there. With the latest policy announced, our dear parallel importers will start to import more Euro V compliant diesel car models which has to be certified under the Mandatory Fuel Economy Labelling Scheme which only VETL can support. The price for each inspection will be 2-4k per model.

As such, the government has definitely handed a pretty nice Ang Pow to VICOM and I shall thank you on their behalf :)

Feel free to share which other company do you think has been affected by the latest budget

(Vested)