Saturday, October 11, 2014

On Blog Leave from 12 Oct to 21 Oct - Study Trip

It's been almost a year and a half since I last travel on an aeroplane with my wife on a honeymoon with Japan. 

This time, I will be on a study mission trip to Europe for just slightly more than a week. I think it's going to be an eye catching experience as I had never been to the continent. During the period, I will be away and will not be blogging until I come back.

The market has been very volatile this month so please take caution if you are buying or selling.

See ya again real soon :)

Thursday, October 9, 2014

Things become luxuries when you don't take them for granted

Following SGYI posts (which I thought was very well written) recently on  "Practising Frugality to Achieve Happiness in a High Cost of Living Environment", I thought this post was going to be somewhat related.
You see, many of us are fortunate enough to be in the shoes we are in right now. The problem with us is because we up the level of comfort we live in, we tend to take many things for granted, and when we start doing that, we begin to lose an appreciation of how our society have evolved over the past couple of years.
Take traveling for instance. I think it is fair to say that most of us can well afford to travel to anywhere in the world we want to go. The tickets and accommodation are expensive depending on where you go but they are generally affordable once you start working. And because of this, many people started to view traveling for granted. They start to see travels like walking but fails to appreciate the true form of purpose when you travel to another country. Simlarly, we often see Iphones like a normal telephone but fails to appreciate the efforts and technology that is put into it.
If only we could pause a brief moment and reflect what we really have in possession in our life, then we would slowly but surely realize that we actually have “everything” – Well, maybe almost everything that life can offer you, literally.
Here is a quote I really liked a lot:
“Gratitute unlocks the fullness of life. It turns what we have into enough, denial into acceptance, chaos to order, and confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. Gratitude makes sense of our past, brings peace for today, and creates a vision for tomorrow.”
Many people think that living a simple life or having enough is often the answer to everything. But the view is often missing the other part of the equation – i.e working hard and having the right attitude to life. One can simply be very contented with life that he doesn’t have the right attitude to live life to the fullest, so there’s an under capacity and that’s not what we are really after. What we want is to give our best, live with the right attitude and be contented in life – a perfect combination to a meaningful life.

I have encountered young readers who thinks that it is ok not to put in their full effort in studies and work (and life) as he has been accustomed to living a very contented life for the past 21 years. It’s good that he thinks the contented life part this way but I think he could give a shot at how potentially he could transform and improve his life much better.
For me and personally my own view, I think it is fine to be ambitious in life, to want some form of luxuries (cars, condominium, travels, etc) at some point in our life, as long as one works hard for the money to earn them and appreciate (this is key here) the things that he or she already have. And this is precisely the most common problem and natural occurrence that happens to everyone at some point in our lives. We somehow become complacent and revert back to our default mode of taking things for granted. This is the REAL PROBLEMS that we are referring to and want to avoid.

When we don't take things for granted, suddenly anything and everything in life becomes luxuries to you.

Sunday, October 5, 2014

Vicom - Looking Ahead and Beyond - Part 2

In my previous post, I have discussed quite a bit on the core business for the vehicle testing and inspection for Vicom. Today, we will look at the other side of its business - the non-vehicle testing services in the form of Setsco, a subsidiary owned by Vicom since 2003.

Setsco provides calibration, testing and certification services to various industries. Some of the main industries covered are Aerospace, Chemical, Construction and Manufacturing industries - a main pillar of Singapore economies in recent times. We will take a look at each industries later in more detail.

Based on historical data prior to 2011 (when Vicom is still reporting its segmental results), we know that revenue contribution proportion has been split 1/3 from vehicle division and 2/3 from its Non-vehicle division. On profitability however, the vehicle division accounted for 2/3 while its Non-vehicle division accounted for 1/3. With the main core business reaching somewhat a mature stage at this point in time, any increase in revenue and profitability for the company can be accounted by contributions from its non-vehicle division, somewhat a key play for Vicom to grow its business beyond the traditional vehicle testing and inspection. This reminds me somewhat of another bluechip in SPH where the core business has reached a plateau stage and they have to diversify beyond their traditional business.

In its latest reported 2nd Q financial statements, the Chairman has mentioned that the vehicle testing business will somewhat moderate while its non-vehicle testing business is expected to grow despite the keen competition. Competition in this area is somewhat fierce, especially with overseas players such as SGS SA (Swiss) and Bureau Veritas (France) knocking on the local market door. Since the company stopped reporting its segmentation business in 2011, it is somewhat difficult for investors to look for financial figures from its Setsco business.

Based on the data we have, the profit margin has been increasing every year to what we have as 19.1% in 2010. Assuming we use the same historical CAGR, the EBIT we have today should somewhat more than triple the amount we see in 2010.

Year 2005 2006 2007 2008 2009 2010
Non-vehicle Testing Services     27.5    32.2   37.3    43.9     47.8     51.4
Non-vehicle Testing Services       3.3      3.8     4.7      5.6       8.8       9.8
Profit Margin 11.9% 11.9% 12.6% 12.7% 18.4% 19.1%

Comparing this against one of its main competitors in the same niche segment, Bureau Veritas - which has a profit margin of around 16.7%, I must say the management have done pretty well with the above average industry profit margins.

Industry Sectors

Singapore is a beneficiary of major industries coming in from overseas. In particular, the chemical and construction industry have been key pillar of what Singapore is going to shape up for the next decade which will benefit Setsco.

Chemical - Singapore’s position as a global chemicals hub has grown in tandem with the extensive development of Jurong Island — an integrated complex housing many of the world’s leading energy and chemical companies, among them BASF, ExxonMobil, Lanxess, Mitsui Chemicals, Shell and Sumitomo Chemicals. Presently, Jurong Island has successfully attracted investments in excess of S$35 billion. 

Construction - Demand for the construction sector remains strong in the next few years as the Singapore housing units shown by URA will reach all time high in 2015/2016, in particular with respect to the HDB and Private properties completion.

Manufacturing and Aerospace industries are also growing marginally with companies such as Rolls Royce using the Seletar campus as one of the MRO center.

It appears that Vicom are gearing up for expansion of its business beyond just the Singapore region. Already, they have set up an office in Malaysia, and another one should follow up in Vietnam. With its core business hitting a stag at the moment, the growth should come from the Setsco business and a use of its huge cash they hold in their balance sheet should do justice if it could return more value for their shareholders.

Saturday, October 4, 2014

Vicom - Looking Ahead and Beyond

The recent price decline in Vicom has caught my attention. It has fallen from a high of $6.60 to a recent $5.85 and I received queries from a reader whether the stock is a buy at this price. I told the reader who emailed me that I do not give a recommendation, but can provide an analysis of where I think the company's outlook is heading right now.

I have made two posts this year in relation to Vicom. The first one was on 12th February 2014 while the second was on 11th May 2014. You may refer to my previous posts should you be interested.

It has now been almost 5 months since I've last written an analysis on the company. So let's see what updates there are since. I would probably not touch too much on its financials as they can be easily attainable from the annual report. In short, the company has a pretty decent run up to its EPS over the past couple of years and is hoarding a huge amount of cash in their balance sheet. Dividends have thus increased as a result, but a couple of investors have raised question on whether they are sustainable.

There are two main segmentation on Vicom's business - testing and non-testing services but for the purpose of the research, I will focus on the vehicle testing and inspection services.

No. of Vehicle Inspection (by LTA)

No. of Vehicles Inspection (by LTA)
% Growth
2014* (estimates)

Based on the latest 2013 annual report, we know that the number of vehicle testing from Vicom amounted to 518,943 while LTA figures came up to 697,870. This gives Vicom a 74.3% market share (519,943 / 697,870) for its vehicle testing service. If we were to take a conservative 0.5% growth in the estimated number of vehicle inspection by LTA in 2014, we would come up to a figure of 701,359 - this would translate accordingly to 521,537 vehicles for Vicom using the above computed market share.

One common trend from the above table is that the growth rate has been increasing at a decreasing rate. This is not surprising given that the LTA has previously mentioned that the growth rate will be set at 0.5% per annum from February 2013 to January 2015. The interesting news for this is that given the current quantum expiring in Jan 2015, it should be anytime soon that they will announce their plans for the next 3 years. This will have a huge impact on the outlook for Vicom.

No. of Vehicles De-registered

On 13th Jan 2014, the LTA released a statement stating the general rising trend of vehicle de-registering and this trend will continue for the next foreseeable future until 2016 (will elaborate later). If we see from the data below from Jan to Aug 14, the number of vehicles de-registering has been at an all-time high and has averaged at about 4,493 vehicles a month. This will have an impact on Vicom's inspection and testing business as they depend highly on the number of vehicles that is sent for repair and inspection.

No. of Vehicles Deregistration under VQS (by LTA)
2014* (estimates)

Ageing Distribution of Vehicles

Some investors have raised concerns regarding the increasing number of de-registration of vehicles in recent months and they are valid concerns. But to me, this is nothing more than just a cyclical cycle which we know will be coming.

The increasing recent number of vehicles that is de-registered can be attributed to the ageing distribution of these vehicles. A look at the data below and you can see that most vehicles have an ageing distribution of between 6-9 years, which means that they are likely at the upper trend of de-registering period. If we look between 2004 to 2006, the number of vehicles that is de-registered reached the above 100,000 mark and you can see how this affects the company quite adversely at that point. Hopefully, this time they would be able to avoid a repeat of the incident given the high COE quota prices (discussed later).

COE Quotas and Prices

Certificate of Entitlement (COE) quotas are trending upwards in the second half of 2014 given the increasing number of vehicles that are de-registered in recent months. Despite that, COE prices for all vehicle categories rise due to strong demand and this may bode well for Vicom.

Although COE Quotas have risen and car buyers are looking to replace their old cars, the high COE prices means that vehicle owners are holding off their deregistration due to the high cost of purchasing a new car, and opting instead to extend their COEs for a further 5 years. This can also be seen from the contracting sales figure of new cars, indicating that car owners are likely to extend rather than buy.

This could very well be what Vicom needs. Instead of having a huge number of vehicles getting deregistered at the same time like what happened back in 2004-2006, the number of vehicles deregistered could be spread over a couple of years, giving the company a breathe time to adjust. The extension beyond the 10 years would also mean that the testing and inspection for the vehicles need to be done annually (after 10 years) instead of biennially (3-10 years), which means that the frequency of vehicles sent to Vicom could increase.


There are certain worries that is evident in the public and private transport in the sense that the company is highly reliant on the policies of what the government and LTA decides. But a number of factors could play out in favor of Vicom at the end of the day depending on how the management works out the strategy. Remember that even during the GFC, the management has handled the situation very well and returns good value for shareholders.

If you are an investor that are looking out to buy the stock, get an idea of how the policies might play out in the next couple of years for Vicom. The share is currently trading at a multiple of 17.6x, which is higher than the historical 10 year average of 12.2x. The current price yields a dividend of 3.8%.


What do you think of the company? Are they undervalued/overvalued at current price? Can the dividends be sustained?

Friday, October 3, 2014

Starting investment when you are too young - Is it a good thing?

We often hear that starting your investment when you are at a young age is a good thing as it allows more time for compounding to take effect. But this is on the premise that everything else remains constant and time is only the variable factor that is considered.

I've come across stories of many young readers recently who wanted to start their investment journey as early as possible, some are as young as 15 while another at the tender age of 18. The intern in our department is another one whom I've come across. We had lunch today and I get to find out more things about him and his "dreams". He is currently at his 2nd year at Ngee Ann Polytechnic, 18 years of age and has started investing in the stock market. When I asked him how he gets his capital, he told me that he dislikes studying and would prefer to go outside and earn side income, save and then invest, all of these at the expense of his studies.

While I do applaud his motive for investing at such a young age, I really question the need to do so for two reasons. 

First, a lot of the knowledge and skills that you can learn in school are under-estimated by students. The fact remains that school and libraries are the two places where you can find a lot of information and resources where you can pick up valuable skills. At the young age of 18 or 15, I question whether the young investor has the necessary knowledge in investing.

Second, size is key in investing. At the early stage, most people would use their savings earned from their active income to build up their investment portfolio. So the amount that is earned from one's daily job played a key role in determining the size of your investment over time. The thing is by sacrificing his studies and probably therefore his diplomas/degrees, he would probably not get a job that pays a decent amount that is sustainable. We know that Talent is underrated while paper degrees are overrated, but that's the fact you experience in today's society. You can be the most productive and capable person in the company but if you lose out in terms of degrees and qualifications, you would still be bypass in the promotion list to a management position = FACT IN LIFE, GET THIS STRAIGHT.

So out of curiosity, I went to test out the two scenarios using Wealth Builder by investmentmoats. Let's call them Jon and Max.

  • Decides to forgo his paper qualifications.
  • Invested at the age of 18 through part-time jobs and income.
  • Time to Maturity: 47 years (until the age of 65)
  • Monthly salary: SGD 1,800
  • Percentage of amount invested = 70%
  • Income Growth Rate = 3%
  • Wealth CAGR = 3%

  • Degree paper qualifications
  • Invested at the age of 25
  • Time to Maturity: 40 years (until the age of 65)
  • Monthly salary: SGD 3,000
  • Percentage of amount invested = 70%
  • Income Growth Rate = 5%
  • Wealth CAGR = 3%

Based on the two scenarios, we can see that Jon ends up with $2.7 and Max ends up with $4.7m by 65 years old. One of the few critical assumptions used is of course the starting pay and income growth rate which makes a whole lot of difference. There are many assumptions left out in this simple example but think you can see what I was trying to say here.

So investing at a young age is good, but too young?? 

Friday, September 26, 2014

Communicating the philosophy of life to your children

There's a quote by Warren Buffett that says:

"Give your kids enough so that they would feel they can do anything but not too much that they would feel like doing nothing"

For those of you who are parents (or becoming parents to be), you would probably agree once you have children, your emphasis on life would greatly shift from your once lofty ambitions of becoming the number one mountain hikers in Mount Everest or a singer at Singapore idol to raising your children via your own philosophy of life. Kids are greatly influenced in their early lives by the behaviour of the people around them. and so you put greater focus on how you would communicate your philosophy of life to your children. They almost become your everything in life and suddenly you have a task greater than anything you previously did to make them adapt to this world and be a successful person.

There's inevitably many varieties to one's philosophy of life depending on where and how you were brought up yourself or the belief that you have strongly behold. For example, are you the type that believe in a fabled lifetime shower of parental handouts and assistance such that whenever your children runs off a problem that you always bail out for them. Or are you the type that only provides assistance to an extent they needed to be bailed out when required. It is always easy to say but difficult to practice in real life. Their blood will become thicker and twice more important than your own. Whenever they wanted a toy out of no special event, and the moment you can financially afford it, you would usually more than not succumb to his crying request.

B's precious baby :)

The above quote by Warren Buffett probably resonates with what I am going to communicate to my children. I wanted my children to know that there are resources for them to start believing in the things they wanted to do yet not take it for granted that they do not have to lay a finger on anything to do nothing. I wanted to tell my children that going to University is one of the gateway to learn and obtain many resources but they are not the sole constraint of being successful in life. I do not want to be the dictator (liabilities) in their lives but rather an adviser (assets) that they can talk to whenever they needed a listening ear. 

Comparing luxuries with the Joneses and societies has also become the prominent topics that I would like to educate my children. Instead, focusing on one's needs about being frugal and teaching them about the holy grail of saving during their early years will play an important role especially after they entered the working force. Investing strategy may eventually differ from individuals but basic investing in general is probably required to keep up with the economic times of rising inflation. So while I have invested a meagre of stocks in ST Eng for him to begin with, he'll be free to do anything he want with the strategy he believes when he grows up.

What about you? Are there any philosophies in life that you would like to pass down to your children?

Child Portfolio

No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
ST Engineering

Thursday, September 25, 2014

"Sep 14" - SG Transactions & Portfolio Update"

No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
FraserCenter Point Trust
SembCorp Ind
China Merchant Pacific
Ascott Reit
Mapletree Greater China Commercial Trust
FraserCommercial Trust
ST Engineering
Ascendas Hosp. Trust
Stamford Land

Total SGD


The Portfolio is down of about 1% compared to previous month due to the drop in two of my biggest holdings in FCT and Vicom. I am really not too concerned with the drop as these are in relation to market sentiments which have seen more volatility this month.

The notable highlight for this month has been the divesting for First Reit as I look to pare down on my Reits holdings. It has seen a nice run-up since I last bought them in stages last year and the year before. The dividends received has been well taken as well. I would be interested to add this counter back to the portfolio should there be opportunities to do so. I have also divested all my holdings in Second Chance.

I have added some asset play in OUE and Stamford Land to the portfolio. You can see my previous posting for the review here on OUE. This is in line with the growth play that I would like to have on the portfolio other than pure dividend counters. Last but not least, I have accumulated further on China Merchant Pacific which makes them my 4th largest holdings in the portfolio.

Earnings season is up and coming for next month so we'll probably see some good opportunities abound and a nice round-up to the last 3 months of the year.