Wellcall Holdings Berhad (Wellcall) registered a PATAMI of RM12.8mn in 2QFY23 (+59.1% QoQ, +61.7% YoY), pushing 1HFY23 PATAMI to RM20.9mn (+40.3% YoY). The result came in above our and market expectation at 62.2% and 60.2% respectively. We are optimistic on Wellcall outlook given its steady market share in the industrial rubber hose industry. Maintain a BUY on Wellcall, with a higher TP of RM1.47.

• Above expectations. 1HFY23 PATAMI of RM20.9mn was above our inhouse and street estimates, making up 62.2% and 60.2% respectively thanks to tremendous exports sales which surged by 28.4% YoY.

• Dividend. The Group declared a second single tier dividend of 1.8sen per share, bringing cumulative dividend payout to 3.2sen per share for FY23. This translates into 2.8% at current share price.

• QoQ. Revenue decline by 4.7% QoQ but PBT margin improved 7.5ppts QoQ. Sales was slightly hampered by the rescheduling of order deliveries by customers due to festive seasons. Margin improved nonetheless, thanks to higher closing inventories which are scheduled to be shipped out in subsequent reporting period to customers.

• YoY. Meanwhile on yearly comparison, revenue and PBT surged by 16.7% YoY and 50% YoY respectively, thanks to higher sales volume to exports market. Australia/New Zealand accounted the largest share in the geographical sales breakdown with 55.1% YoY growth and followed by South America (+25% YoY), Europe (+21.8% YoY) and USA/Canada (+20.8% YoY).

• YTD. As at 1HFY23, there was a significant improvement in both revenue and PBT, with a notable increase of 24.3% YoY and 40.6% YoY respectively. This impressive performance was largely attributed to remarkable export sales (+28.4% YoY), which managed to compensate for a 14.3% YoY decline in local sales.

• Outlook. We are optimistic on Wellcall outlook given its resilient market share in the industrial rubber hose industry. We expect exports sales to remain intact in view of strong products demand in global market. On top of that, the Group’s orderbook visibility is healthy with rising order volume from customers following recovery in global demand for industrial hoses, a boon to overall performance.

• Forecast. In view of higher-than-expected earnings, we tweak higher our FY23-25F earnings forecast by 10.5-14.3% following new assumptions on sales volume and margin.

• Maintain a BUY, TP: RM1.47. Maintain a BUY call on Wellcall with higher TP of RM1.47 (RM1.41 previously) following our earnings upgrade. Our valuation is based on 5-year average PER of 17.3x that is pegged to FY24F EPS of 8.5sen. Our favourable view on the stocks is driven by healthy margin growth, favourable cash position, and attractive dividend yield.

Source: BIMB Securities Research - 31 May 2023