Result

• Wellcall Holdings Berhad (Wellcall) registered a net profit of RM8.8m during 2QFY21, which soared 6.8% qoq and 20% yoy on the back of encouraging revenue which jumped 7.6% qoq and 19.7% yoy to RM38.2m.

• Within expectations. The Group’s 6MFY21 net profit of RM17m was within our in-house (42.7%) and market estimates (47.1%). The commendable result was spurred by higher sales from exports market despite sluggish contribution in local market.

• Dividend declared. Wellcall has declared a second single-tier dividend of 1.40sen/share. This brings total dividend payout of 2.8sen/share which makes up 43.8% of our full year dividend forecast.

Comment

• Sturdy export sales boosted QoQ performance despite subdued local sales. Wellcall’s revenue and profit before tax (PBT) jumped 7.6% qoq and 10% qoq respectively during 2QFY21. Stellar results were underpinned by recovery from the global industrial rubber hose market which instilled higher sales from exports market (+10.5% qoq), mainly driven by USA/Canada (+22.8% qoq), Middle East (+18.6% qoq), Australia/New Zealand (+14.1% qoq), South America (+59% qoq) and Africa (+58.3% qoq). Nevertheless, export sales to Asia (- 0.5% qoq), Europe (-26.6% qoq) as well as local market (- 18.2% qoq) were sluggish during this period.

• Better YoY also dominated by exports market. On a same note, revenue and PBT escalated 19.7% yoy and 28% yoy respectively given Wellcall’s efforts on strengthening its customer base globally through prompt delivery to its customers. During this period, exports sales made up 92% to the Group’s revenue. Additionally, PBT margin also inched up higher which rose 2ppts yoy. Besides, PBT for exports market grew double digit growth to +31% yoy despite minor contraction in PBT from local market (-0.1% yoy).

• Stronger 1HFY21. Cumulatively, revenue and PBT improved 3.4% yoy and 8.8% yoy respectively during this period, mainly driven by exports market. Export sales contributed approximately contribute c.91% during 1HFY21 as compared to 87% in 1HFY20. Also, PBT improved by 1.5ppts yoy during 1HFY21.

• Steady outlook. Looking forward, the Group remains optimistic on the business prospect for the rest of the year given recovery in global demand for industrial rubber hose smid current challenging situation as affected by pandemic. Although current economic uncertainty might disturb business performance such as impact on supply and demand mechanism of raw materials, disruption to global supply chains, limited cargo capacity as well as fluctuation of currency exchange sentiment, we deem the Group is well poised to benefit from economic recovery upon mass vaccination roll-out as well as gradual reopening 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 an unchanged target price of RM1.33. Our valuation is pegged at PE of 16.6x FY21F EPS of 8 sen, slightly higher than 5-years average mean PE of 16.4x.

• 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 reaching ideal vaccination rates in local as well as its export markets.

Source: JF Apex Securities Research - 27 May 2021