• Upgraded to BUY (TP: RM1.90). Wellcall 9MFY24 PATAMI of RM39.1mn (+1.2% YoY) was within both our in-house and Bloomberg consensus’ estimates, making up 72.3% and 72.4%, respectively. Wellcall declared a third interim single-tier DPS of 2sen, bringing 9MFY24 DPS of 6sen. This makes up 75% of our DPS assumption of 8sen for FY24F. We are adopting a cautious stance on Wellcall short term performance 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. Due to the recent decline in share price, we have upgraded our recommendation for Wellcall from a HOLD to a BUY call, 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. 3QFY24 revenue and PBT improved by 4.4% QoQ and 18.6% QoQ respectively, thanks to continuous orders from the market demand for industrial rubber hose, particularly from Europe, South America, Africa, and USA/Canada. As for 9MFY24, revenue decline 3.9% YoY but PBT escalated 2% YoY. Slower revenue was due to decreased demand from the export market, which declined by 6% YoY, despite encouraging demand from the local market (+20% YoY growth). The decline was largely attributed to reduced exports from Australia/New Zealand (-34.1% YoY) and South America (-20.4% YoY).

• Forecast. Unchanged.

• Outlook. We put a cautious on Wellcall's short-term outlook to the Red Sea crisis impact given its significant reliance on the export market. However, we remain optimistic about the company's long-term prospects, underpinned by its strong market position in the industrial rubber hose sector. We expect consistent global demand for its products and have confidence in the stability of its export sales. The Group's order book also shows a positive trend, with customer orders increasing in response to the global recovery in industrial hose demand. This points to favourable prospects for the company’s overall performance. Our positive stance on the stock is further supported by strong margin growth, a solid cash position, and an attractive dividend yield.

Source: BIMB Securities Research - 30 Aug 2024