(Initiating Coverage)
Last Traded Price ( 22 Jun 2021): S$2.06 (STI : 3,109.20)
Price Target 12-mth: S$2.13 (3% upside)
Potential Catalyst: Relaxation of COVID-19 restrictions, strong growth
in the marine and offshore and construction sectors
Wei Le CHUNG +65 6878 7869 weilechung@dbs.com
Alfie YEO +65 6682 3717 alfieyeo@dbs.com

Hold up for an inspection
• Fairly valued for a stable play
• Stable vehicle inspection business boosted by higher COE renewals
• Recovering non-vehicle testing business and margins
• We initiate coverage with HOLD and TP of S$2.13

Fairly valued for a stable play. While we see favourable developments in VICOM’s vehicle inspection business and a recovering non-vehicle testing business, we believe there is limited upside based on valuations. VICOM is currently trading at 32.9x FY21F earnings (+1.3SD) and an FY21F dividend yield of 2.7% despite our expectations that earnings will below pre-COVID levels in the next two years.

Stable vehicle inspection business and favourable trends. VICOM’s vehicle inspection business is largely stable and resilient against economic downturns. Recently, we have noticed favourable trends brewing in the car inspection space
and believe that VICOM stands to benefit as the market leader. These trends are namely, rising Certificate of Entitlement (COE) renewals and declining passing rates.

Recovering non-vehicle testing business and operating margins. We expect a sequential improvement in SETSCO in FY21F, with the main driver being the biomedical industry due to demand for COVID-related products such as surgical gloves and testing. As business at SETSCO picks up, we are expecting VICOM’s
margins to gradually recover on higher operating leverage.