Result

• Wellcall Holdings Berhad (Wellcall) registered a net profit of RM9m during 4QFY20, which soared 130.3% qoq but deteriorated 7.6% yoy. On the same note, revenue up 41.6% qoq but down 10% yoy.

• As for full year FY20, the Group posted net profit and revenue of RM29.4m and RM134.9m, contracting 20.2% yoy and 20.7% yoy respectively. The uninspiring results were dented by COVID-19 pandemic which halted overall business performance.

• Above expectations. The Group’s 12MFY20 net profit of RM29.4m was above our in-house (117.1%) and market estimates (110.9%) in view of better-than-expected results during recovery movement control order (RMCO) period.

Comment

• Stronger QoQ. Wellcall’s revenue and profit before tax (PBT) surged 41.6% qoq and 99.5% qoq respectively. Better quarterly performance was spurred by recovery of sales from their overseas customers as the Group has resumed their business operation amid easing movement control order during RMCO period. Additionally, PBT margin was also strong by increasing +9.3ppts from the previous quarter, underpinned by better cost control, we believe.

• Covid-19 pandemic bogged down overall YoY performance. On the other hand, revenue and PBT on yearly basis slumped 10% yoy and 8.4% yoy respectively. Sales were slowing down as compared to the same period in the corresponding quarter last year, impacted by global lockdown which affected almost all countries. During this period, export revenue was down 12% yoy. Nevertheless, local revenue improved 8% yoy.

• Unpleasant year for FY20. Cumulatively, 12MFY20 revenue and PBT depleted 20.7% yoy and 20.2% yoy, no thanks to COVID-19 pandemic which affected the overall global economy. Both overseas and local revenue decreased 21% yoy and 14% yoy respectively given tepid demand.

• Dividend declared. Wellcall has declared a fourth single tier dividend of 1.40 sen/share during 4QFY20. As such, the Group has declared 4.95 sen/share for FY20 which translates into a 4.7% dividend yield.

• Sustainable growth ahead. We expect Wellcall is well poised to benefit from economic recovery upon successful launch of vaccine on Covid-19 as well as gradual recovery of business activities. We believe the Group’s businessperformance to resume back to the pre Covid-19 level going forward, spurred by steady demand of its industrial rubber hose, as well as better contribution from its joint venture with Swedish partner, Trelleborg on manufacturing marketing, and selling of composite hose. According to the management, the progress of the production lines is intact, with production line 1 is ready for testing while production line 2 is reaching 80% completion.

Earnings Outlook/Revision

• We increase our net profit for FY21F and FY22F by 5.4% and 8% respectively to account for better-thanexpected sales and margin.

Valuation/Recommendation

• Maintain BUY call on Wellcall with a higher target price of RM1.33 (previous target price of RM1.21) following our earnings upgrade. Our valuation is now based on PE of 17x FY21F EPS of 7.8sen, slightly higher than 5-year average PE of 16.7x.

• We favour the stock for its: 1) strong margins and healthy cash position; 2) hose is widely used in different industries; 3) favourable cost/sales perspective in which costs are mostly denominated in local currency, MYR whilst export proceeds are in USD. Wellcall is a fundamentally strong company which renders golden opportunity for investors to ride on cyclical stock play as the Group is well poised to benefit from economic recovery upon successful launch of vaccine on Covid-19 and reopening of business activities.

Source: JF Apex Securities Research - 24 Nov 2020