• Overview. Wellcall 3QFY22 net profit surged by 35.9% QoQ and 63% YoY on the back of escalating revenue that expanded by 9.7% QoQ and 31.8% YoY The encouraging performance was spurred by massive global industrial rubber hoses demand as well as a slight increase in pricing for certain products. On the same note, both revenue and net profit jumped by 18.5% YoY and 6.4% YoY YTD thanks to gradual improvement in global economy and therefore, a recovery in demand for industrial rubber hose.

• Key highlights. 9MFY22’s export market made up 90.5% of total revenue, led by the African market following a +71.9% YoY jump and followed by USA/Canada (+40.8% YoY), Australia/New Zealand (+27.9% YoY) and South America (+17.7% YoY). Overall, export market registered an increase of 17% while local market registered a jump of 36% during 9MFY22 thanks to steady recovery in industrial activities locally and globally.

• Against estimates: Inline. 9MFY22 PATAMI of RM25.7mn was in line with our and consensus’ estimates, making up 77.6% and 78.4% of full-year forecast.

• Dividend. The Group declared a third interim DPS of 1.6 sen, bringing year-to-date FY22 DPS of 4.4sen. This translates into a 3.6% dividend yield.

• Outlook. We are positive on Wellcall outlook given its comfortable market share in the industrial rubber hose industry. This will be topped by its zero-inventory business model which will keep its costs under control. Despite global headwinds such as COVID-19 lockdown measures in China and on-going Russia-Ukraine crisis, the Group is optimist on its operating costs and market share where this will be achieved through a close monitoring especially on supply and demand imbalance. The group will also produce measures to offset the high freight and raw material costs.

• Earnings revision. No change to our FY232f-FY24f earnings forecast.

• Our call. Maintain a BUY call on the stock with an unchanged target price of RM1.41. Our valuation is based on average 3-years high PER of 19.3x that is pegged to FY23f EPS of 7.3sen. We like this stock because of its healthy margin growth, favourable cash position, and attractive dividend yield.

Source: BIMB Securities Research - 23 Aug 2022