Vicom braces for headwinds as vehicle-inspection business faces slowdown

Singapore’s new-car market is reviving.

An increasing number of new cars on the island’s roads is bad for Vicom’s vehicle-inspection business. According to Maybank Kim Eng, the firm’s high historical margins are at risk due to the country’s resurgent new-car market.

The report states that 45% of the cars in Singapore are 7-10 years old and will likely be taken out of the market as they approach the end of their 10-year COE lifespan..

New cars do not require inspections for three years, which will drive down Vicom’s inspection volumes.

“We observe changing dynamics for VICOM’s vehicle-inspection business. Powered by 5.6% annual growth in inspection volumes over FY08-13, its EPS had expanded by an 11.6% CAGR. While high historical EBITDA margins of 38% and a 74% market share are attractive, we believe its core vehicle-inspection business will slow down in the next three years,” noted Maybank Kim Eng.