Vicom continued to perform as expected. FY14 revenue of S$108.2m (+3% yoy) formed 99% of our revenue estimate, while net profit of S$30.1m (+6% yoy) formed 100% of our net income projection for FY14. However, the declaration of a final dividend of 8.75 Scts plus 9.5 Scts special dividends, surprised us on the upside as we were previously expecting only 5 Scts of special dividends. This brings Vicom's FY14 full year DPS to 27 Sct (payout ratio of 79.4%) vs. 22.5 Scts for FY13 (payout ratio of 70%).
Rate hike more likely this year
We expect vehicle inspection volume to continue to moderate as more vehicles are expected to be deregistered this year. In order for it to maintain its moderate bottom-line growth, we had (in our last note) pushed our expectation of Vicom's anticipated vehicle inspection rate hike (a general increase of S$2 across the board was assumed) to FY15. We therefore, make no changes to our FY15F net profit forecast of S$31.3m. In addition, we also introduce FY17F estimates to our forward forecast. In terms of dividends, we noticed that this is the third time Vicom has raised its payout ratio since FY12. We, therefore, also raise our payout ratio assumption for Vicom to 79% (in-line with FY14) from 65-66% previously, for FY15F-17F, which translates to DPS of 27.9 to 30.5 for FY15F-FY17F.
No changes in Vicom's outlook statement
The outlook statement from management has remained unchanged. Vicom is still expecting demand for vehicle inspection services to moderate as more vehicles are expected to be deregistered in the year. On the other hand, management expects the non-vehicle segment to continue to grow despite the keen competition.
Upgrade to BUY with higher TP of S$8.55
Vicom returned 28% (ex dividends) since our initiation in January 2014, at share price of S$5.00. With the conclusion of FY14, we roll forward our DDM-based valuation of Vicom, to include FY17F's dividend projection but keep our terminal growth rate and cost of equity assumptions unchanged at 3.5% and 6.8%, respectively. We continue to like Vicom for its resilient cash flows, increasing dividend payouts and strong balance sheet, we now see more capital upside given our higher payout ratio assumption, and hence upgrade Vicom back to a BUY rating from HOLD with a new target price of S$8.55. (Read Report)