Wellcall Holdings Berhad (Wellcall) 3QFY23 PATAMI of RM17.8mn jumped 38.6% QoQ and 64.8% YoY, bringing 9MFY23 PATAMI of RM38.6mn (+50.6% YoY). The results came in above our and market expectation at 100.8% and 101.3% respectively. We maintain a positive outlook for Wellcall, driven by anticipated sustained global demand for its products and the stability of its export sales. Maintain a BUY call on Wellcall, with a higher TP of RM1.73 (RM1.47 previously).

• Above expectations. The 9MFY23 PATAMI of RM38.6mn exceeded both our in-house and street estimates, surpassing by 100.8% and 101.3%, respectively - mainly driven by higher-than-expected orders for industrial rubber hoses, especially from the export market.

• Dividend. The Group declared a third single tier dividend of 2.2sen per share, bringing cumulative dividend payout to 5.4sen per share for FY23. This translates into DY of 4.3% at current share price.

• QoQ. Revenue saw a substantial increase by 12% QoQ, attributed to the positive performance of exports (+10.3% QoQ) and a significant surge in local sales (+32.7% QoQ). Similarly, the PBT margin showed a noteworthy increase of 6.4ppts QoQ, aligning with the impressive sales growth observed in both the local and export order volumes.

• YoY. On yearly basis, revenue and PBT surged by 19.1% YoY and 62.7% YoY, respectively, driven by higher sales volumes in both local and export markets. Among the geographical sales breakdown, the Middle East exhibited the most significant increase in demand with a growth of 106.5% YoY, followed by USA/Canada (+40.6% YoY), Asia (+17.2% YoY), Australia/New Zealand (+13.6% YoY), and South America (+9.7% YoY).

• YTD. As at 9MFY23, there was a significant growth in both revenue and PBT, with a notable increase of 22.4% YoY and 49.6% YoY respectively. This impressive performance was largely attributed to remarkable export sales (+25.3% YoY), which managed to compensate for a 5% YoY decline in local sales.

• Outlook. Due to its robust market share in the industrial rubber hose sector, we maintain a positive outlook for Wellcall. We anticipate a consistent global demand for its products and have confidence in the stability of its export sales. Additionally, the Group's order book reflects a positive trajectory as customer orders surge in response to the rebound in global demand for industrial hoses, which bodes well for the company's overall performance.

• Forecast. In view of higher-than-expected earnings, we tweak higher our FY23-25F earnings forecast by 25.6-27.7% to RM48.1mn-RM56.3mn respectively, following new assumptions on sales volume and margin.

• Maintain a BUY, TP: RM1.73. Maintain a BUY call on Wellcall with higher TP of RM1.73 (RM1.47 previously) following our earnings upgrade. Our valuation is based on 3-year average PER of 16x that is pegged to FY24F EPS of 10.8 sen. Our favourable view on the stocks is driven by healthy margin growth, favourable cash position, and attractive dividend yield.

Source: BIMB Securities Research - 22 Aug 2023