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QuestionsCategory: Valuation QuadrantIs Vicom considered a cyclic stock?
Aldric Chang asked 7 years ago

Hi,
Would you consider Vicom a cyclic stock? I have this thought because while it would seem that vehicles are sent to Vicom on a regular basis for check ups, it is however tied to the number of vehicles aged 3 and above. New vehicles below 3 years old are not required to go for inspection. 
It would seem that this article echoes the sentiment –
http://www.investingnote.com/system/attachments/4b34cd86431745e154496853e5d6d4564c1b2082.pdf?1411549425
Below is an excerpt of the article – 
“As of Aug 2014, 275,500 or 45% of the cars in Singapore were 7-10 years old. These will likely be taken out of the market as they approach the end of their 10-year COE lifespan. Deregistration of these cars will feed into fresh COE supply and revive Singapore’s new-car market. New cars enjoy a honeymoon in the first three years with no inspections required. We expect this to drive down inspection volumes.”
I would just love to have your opinion on whether you would agree that –
a. Vicom can be seen as a cyclic stock due to the above
b. With the looming easing of the QE and interest rates hike worldwide happening in the next 2 years or so, from your experience do you see a good company like Vicom dipping in value to give us a good buy?
Thanks and kind regards,
Aldric

1 Answers
Rusmin Ang answered 7 years ago

 Hi Aldric,  
 
a. It’s always a cycle – old car retires and the new one replaces it. So.. unless Singaporean stop driving and the car population takes a hit, the impact would be minimal in the mid-term. Again, you may want to check the fact – the percentage of cars that is in the range of 1 to 3 years old as these group would replace the retired fleets over the span of three years later.   
 
A note of caution. Analysts are definitely entitled to their own opinions. As an investor, I always remind myself not to be affected by their opinions. I believe finding facts is the key to sustainable wealth creation.      
 
b. I wouldn’t know for sure how low the price could go. In fact, my guess would be as good as yours! But what I can offer is that, ultimately, share price would reflect the fundamental of a stock in the long run. 

Aldric Chang replied 7 years ago

Hi Rusmin,Thanks very much for your reply. Kind regards,Aldric