• Downgraded to HOLD (TP:1.90). Wellcall 1QFY24 PATAMI of RM13.7mn was within both our in-house and market expectation, making up 25.3% and 24.4%, respectively. The Group has declared a first interim single-tier dividend of 2sen/share, translating to a 1.1% dividend yield at the current share price. Revenue and PBT declined by 10% QoQ and 18.7% QoQ, respectively, no thanks to rescheduling deliveries by customer due to increasing logistics cost. We are maintaining our FY24-FY26F earnings forecast unchanged. We are adopting a cautious stance on Wellcall due to the impact stemming from the Red Sea crisis, given its significant exposure in the exports market. However, Wellcall holds a favourable long-term outlook supported by its resilient market share within the industrial rubber hose sector. We are downgrading our rating from BUY to HOLD, with an unchanged TP of RM1.90, as the share price approaches our valuation. Our valuation is based on 5-year average PER of 17.3x that is pegged to FY25F EPS of 11.1sen.

• Key Highlight. The rising logistic costs were impacted by the Red Sea Crisis, consequently affecting a significant portion of the revenue of export countries such as USA/Canada (-24.1% QoQ), South America (-22.2% QoQ), Europe (-3.8% QoQ), Asia (-18.9% QoQ), the Middle East (-14.3% QoQ), and Australia/New Zealand (-3.8% QoQ). Additionally, sales in the local market were discouraging, experiencing a decline of 15.2% QoQ due to the yearend holiday season.

• Forecast. Unchanged.

• Outlook. We exercise caution on the short-term outlook for Wellcall due to the impact of the Red Sea crisis given its high exposure in the exports market. Nevertheless, in the long run, we maintain a positive outlook for Wellcall, considering its robust market share in the industrial rubber hose sector. We anticipate a sustained global demand for its products and express confidence in the stability of its export sales. Moreover, the Group's order book demonstrates a positive trajectory, with customer orders surging in response to the rebound in global demand for industrial hoses, indicating favourable prospects for the company's overall performance. Overall, our favourable view on the stocks is driven by healthy margin growth, favourable cash position, and attractive dividend yield.

Source: BIMB Securities Research - 26 Feb 2024