VICOM AGM FY 2011

VICOM's AGM is pretty boring unlike all the excitements I see from the newspaper and food-snatching is not very common there. There's quite a number of long-term shareholders present and I think it is good to have though some might complain this will make VICOM more illiquid. As it's my first AGM, I am more concerned about understanding the AGM's procedure and etiquette then finding out more about the company. After the formal AGM is over, it's the buffet cum meet up with management time. I realise that it is quite important to be able to recognise faces of the key management if it is your first time attending the AGM. While it may be boring, the trip proves to be rather fruitful.

Here's some of the key points gleaned from the trip:

Financial Statement

• Someone queried about the higher receivables, Chairman Lim says there's no bad debt so far.
• With the completion of SETSCO HQ, capex for the year will drop to normal (the norm from 2004 to 2009 is FCF/Net Profit of 100-120%). No further detail is provided as to acquisition or higher dividend plan though they say that as shareholder themselves they will also want to have higher dividend.
• The parent company provided $2.6m in sales to VICOM, of which 2/3 comes from taxi inspection. (A new trick that I learn - check the parent company's annual report for inter-segment sales

Vehicle Inspection

• They have no received any concrete details as regard to the government's adoption of Euro V in 2014. (Not sure if it is because they are not allowed to)
• Comfort obviously send their buses and taxis to VICOM for inspection.
• When queried about the proportion of inspection of private cars to overall inspection figure, they say the data is sensitive and thus they cannot reveal it. However, I believe that the data can easily be retrieved through finding the right combination of statistics from LTA. (I am not going to reveal the combination, that's for you to find out)

SETSCO

• The wild card in Middle East JV has been called off. Mr Heng finds that they are not too comfortable operating in the region and decided to pull out of it.
• SETSCO without the vehicle inspection business is the number 3 in Singapore. The largest 2 are SGS and TUV SUD with revenue of $60 million + as compared to SETSCO's $55m. 
• The management admits that SETSCO is operating in an open market unlike the vehicle inspection business. So long as one can get the equipment, skilled labour and accreditation, they will be able to provide testing services.
• Regarding the recent tussle between HSA and the medical community over medical device, SETSCO has been trying to get a slice of the pie. However, it is up to the government to decide if they want to allow SETSCO to do it.

The most important part of AGM is still to get a feel of the management team, and I am lucky to be able to interact with the current CEO Mr Heng and soon-to-be CEO Mr Sim Wing Yew.

• The reason why Mr Heng sells part of his shares earlier on is as all his savings are in VICOM's shares. He will need some money now that he is retiring and to pay up loans, some of which has been used to exercise the option.
• As for Mr Sim, this is his career and he still has 4 kids to support, thus he reassures us that he will also want to grow the top and bottom line. He is still trying to learn as quickly as possible and at the same time he is also teaching his new successor in Comfort Engineering. (which is he will not take dual CEO roles)
• Mr Sim says that he will be going for evolution and not revolution when he takes over.
• As for the growing cash balance, they say it is good to have excess cash as you will never know when you will need it. Neither do they want to overpay for acquisition like what TUV SUD offers for PSB. (Seemed to be $120m for 3-5m in profit).
• Most importantly, they believe that a downturn will eventually occur in the long run and the right opportunity will surface (sound like the fat pitch theory). Mr Heng says he will rather pay with cash than to pay with credit cards for it and Mr Sim shares the same view. This was what happened in 2003 when they acquired SETSCO from Keppel Corp and they only need to borrow a bit of money for it.
• One of the shareholders who works as a head-hunter, recounts how he fails to poach SETSCO's high quality staff with a 30-40% increment in salary. Mr Sim or Mr Heng says that he always tells his staffs that while he will not pay them the highest salary, they will be guaranteed a stable income and job even during recession. He says that the equipment is not a barrier to entry as anyone with the money can buy them, but it is these skilled workers that are their biggest assets.
• Mr Sim mentions that the report of segmental revenue and profit is a disadvantage to the company, thus they cannot disclose more about SETSCO's other segments. For e.g. if competitors know that their margin is 20%, then they can compete by undercutting the margin to 17%.

Therefore, VICOM's management holds a rather conservative view though the results of the new leadership can only be assessed few years later. For now, let's wait for the FY 2012 Q1 result coming out on 10th of May as well as the dividend to be paid on the 14th of May. Using the latest figure, it will be no problem for the vehicle inspection business to show a 5-10% growth in profit in Q1.

I can't wait to attend another 3 more AGMs this coming July