Wednesday, April 11, 2012

VICOM - FY 2011 Review (Part 1 - Financial Statement)

This will be a 2 part review for Financial Year ending 2011 where the first part will be on the financial statement while the second will be business prospect of VICOM and SETSCO.

Ending 2011, VICOM has once again achieved a remarkable result, breaking new highs and continue its track record of 8 years of top and bottom line growth.

Fig 1 Income Statement

For FY 2011, revenue increases by 8.05% while net profit increases by 14.2%. From 2004 to 2011, total profit has grown by 300% which is a compounded annual growth rate of 17% for 7 years. This is the typical Lynch stock - the unattractive business which has been able to grow its profit at double digits without people noticing it. Net profit margin hit a new high at 28.3% from 18.0% in 2004. This is what that has really been spectacular about VICOM.

While total profit has grown by 300% in 7 years, total revenue has only grown 195%. As I have mentioned before, VICOM belongs to the type of business whose operating expense increases at a slower rate than its revenue. Since 2006 onwards, increases in operating expense has lagged behind increases in revenue bringing about double digit growth in profit. As seen in 2008, while revenue only grows by 5.56%, it has a profit growth of 25.6% as operating expenses drop by 1.14%. This is why I have such confidence in future profit growth in VICOM as all it takes is perhaps a 5-7% growth in revenue for profit to grow at double digit.

Fig 2 Operating Expenses Breakdown

As we see from the above breakdown on operating expenses, most parts remain the same with the exception of staff cost increasing by around 10%. This is pretty realistic as it is essentially a service provider whose main  cost like in its staff.
Fig 3 Balance Sheet

For the balance sheet, it's pretty unexciting. Capital structure remains unchanged with absolutely no debt while cash hit an all-time high of $55m. Despite a 60% payout ratio and spending on building the new HQ block, VETL, CDST, VICOM's total cash holding has never fail to increase over the year. Of course, this is starting to be a concern on the management's inability to utilise the cash and I am wondering if I should start to discount this cash balance.

Fig 4 Financial Ratio


Cash Flow/Net Profit drops by a further 2.4% to 71.1% last year once again due to spending on the new HQ building at Teban Garden. As seen from the figure above on CAPEX, it has incurred a sum of almost $10m from Capital-work-in-progress, Leasehold Buildings and Leasehold Land. So will capex continue to reach new high next year? I can only answer you in Part 2 as it is directly linked to the business prospect itself.

ROA and ROE continue to be very high at 19% and 24% respectively and the ROA is really amazing as it is not a technology company. I have also included a ROIC to see how well it has performed from its Invested Capital and you can see that figure has been really high at above 60% for the past 3 years. The tripling of ROIC in 6 years show VICOM's ability to scale up without investing additional capital.

This will be the end of part 1, it's pretty short as there's simply no much changes in its financial statement. As for whether it's high ROE will be maintained, this will be discussed in part 2 on business prospect of vehicle inspection and SETSCO. There's quite an amount of new and exciting developments which many may have missed or not noticed.

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