• Maintain HOLD (TP: RM1.90). Wellcall 1HFY24 PATAMI of RM25.5mn was within both our in-house and market expectations, making up 47.7% and 45.8%, respectively. The Group has declared a second interim singletier dividend of 2sen/share, bringing 1HFY24 dividend of 4sen/share. This translating to a 2.3% dividend yield at the current share price. We make no changes to FY24-FY26F earnings forecast. We are adopting a cautious stance on Wellcall due to the impact of the Red Sea crisis, considering its significant exposure to the export market. However, the company maintains a favourable long-term outlook, underpinned by its resilient market share in the industrial rubber hose sector. Maintain a HOLD call for Wellcall with an unchanged TP of RM1.90. Our valuation is based on 5-year average PER of 17.3x that is pegged to FY25F EPS of 11.1sen.

• Key Highlight. Revenue and PBT for 2QFY24 declined by 6.4% QoQ and 18.4% QoQ respectively, due to slower demand and increasing raw material costs. Nonetheless, as of 1HFY24, PBT margin increased by 5.7ppts YoY despite a slight decline in revenue (-1.2% YoY), thanks to better operating costs. During 1HFY24, exports to Middle East improved by 20.5% YoY, and followed by USA/Canada (+6.7% YoY) and Africa (+5.6% YoY). Overall, sales in the export market declined by 2.9% YoY. Nonetheless, sales in the domestic market are encouraging, inching up by 23% YoY.

• Forecast. Unchanged.

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

Source: BIMB Securities Research - 29 May 2024