Result

• Wellcall Holdings Berhad (Wellcall) posted a net profit of RM8.2m during 1QFY21, which depleted 8.5% qoq and 9.8% yoy. On the same note, revenue was down 4.7% qoq and 9.8% yoy to RM35.5m.

• Within expectations. The Group’s 3MFY21 net profit of RM8.2m was within our in-house (20.6%) and market estimates (22.9%).

• Dividend declared. Wellcall has declared its first single tier dividend of 1.40sen/share which make up 21.9% of our full year dividend forecast.

Comment

• Easing QoQ…. Wellcall’s revenue and profit before tax (PBT) deteriorated 4.7% qoq and 9.4% qoq respectively during 1QFY21. Easing momentum was dented by disappointing sales performance mainly in local market which tumbled 19.3% qoq as well as exports market, - 8.2% qoq, resulting from Covid-19 pandemic outbreak. Also, PBT margin inched down by 1.6ppts on quarterly basis.

• ….as well as YoY results. On a same note, revenue and PBT slumped 9.8% yoy and 6.6% yoy respectively due to sluggish sales coupled with higher loss from associate. Nevertheless, exports sales to some countries were higher such as Asia (+5.0% yoy), Australia/New Zealand (+28.4% yoy) and South America (+8.8% yoy) given its steady demand.

• Outlook remains intact. For the following quarters, we believe Wellcall to post healthy results amid reinstated MCO.20 in Jan’21 as the Group’s business operations remained open, adhering to standard operating procedure (SOP). Overall, we expect the Group is well poised to benefit from economic recovery upon successful of mass vaccination programme on Covid-19 as well as gradual recovery of business activities. We believe the Group’s business performance to resume to the pre Covid-19 level in the near term, spurred by steady demand of its industrial rubber hose, on top of better contribution from its joint venture with Swedish partner, Trelleborg on manufacturing marketing, and selling of composite hose.

Earnings Outlook/Revision

• No change to our earnings forecasts for FY21F and FY22F

Valuation/Recommendation

• Maintain BUY call on Wellcall with a n unchanged target price of RM1.33. Our valuation is based on 5- years average mean PE of 16.6x FY21F EPS of 8sen.

• 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 - 22 Feb 2021