Result

Wellcall Holdings Berhad (Wellcall) registered a net profit of RM10m during 4QFY21, which soared 14.3% qoq and 11.6% yoy on the back encouraging revenue which jumped 32.8% qoq and 27.4% yoy.

As for full year FY21, the Group’s net profit of RM34.2m, up 16.3% yoy amid strong revenue, +16.4% yoy. The massive growth was underpinned by strong sales from exports market despite sluggish local sales arising from movement restriction order. 

Within estimates. The Group’s 12MFY21 net profit of RM34.2m was within our in-house and market expectation, accounting for 107.9% from full year earnings forecast. The encouraging performance was spurred by exports market as recovery on global industrial rubber hose demand.

Attractive dividend yield. Wellcall has declared a fourth single-tier dividend of 2.80sen/share. This brings total dividend payout of 7sen/share for FY21 and translates into 6.7% dividend yield.

Comment

QoQ earnings improved as movement control order (MCO) was lifted. Wellcall’s revenue and PBT jumped 32.8% qoq and 47.2% qoq respectively following easing in movement control order in our nation. In conjunction to that, local sales revenue and PBT improved 19.3% qoq and 34.7% qoq respectively. On the same note, export market also posted encouraging growth as revenue and PBT escalated by 33.9% qoq and 48.2% qoq respectively as most of exports countries showed pick up in sales, led by South America (sales up 184.6% qoq) given recovery on global industrial rubber hose demand. Besides, PBT margin increased 2.9ppts qoq given better cost control, we believe.

Export sales boosted YoY performance despite muted sales from local market. The Group’s revenue and PBT increased 27.4% yoy and 16.4% yoy respectively spurred by export market on the back of sturdy orders from existing customers. Exports sales dominated by South America (+115.8% yoy) and followed by Africa (+74.2% yoy), USA/Canada (+66.8% yoy) and Asia (+64.1% yoy). However, sales from Middle East (-18.3% yoy) and Europe (-7.9% yoy) showed some diminishing in volume orders. Additionally, sales from local market was also sluggish which deteriorated 25.2% yoy amid lower PBT margin (- 30.6% yoy).

Sturdy FY21. Cumulatively, revenue and PBT soared 16.3% yoy and 16.4% yoy respectively given massive orders from export markets in respect to recovery in global industrial rubber hose. Export sales made up approximately 92.2% total revenue during FY21 as compared to 90.1% in FY20. Also, exports sales surged 19.2% yoy during FY21 despite decline in local sales (-9% yoy) resulted from lockdown during Covid-19.

Promising outlook for FY22. Looking forward, the Group remains optimistic on its business prospects for FY22 banking on encouraging demand from its customers locally and globally in view of picking up in our economic activities during Phase 4 of the National Recovery Plan (NRP) as well as opening of cross border activities globally. Nevertheless, the management highlights that the Group is currently facing shortage in labour following contracts ending during the period coupled with the freeze in foreign workers recruitment by the Malaysian Government. Also, the Group also cautious on fluctuation on material cost, foreign exchange as well as continuation of high freight cost that might disturb the timing of order deliveries. However, The Group will continue to focus on its operational efficiencies on all aspects to ensure the smoothness of business environment. Overall, we believe the Group’s business performance to remain upbeat during FY22, 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

We tweak down FY22F earnings forecasts by 2.7% to RM36.7m on the back of lower sales assumption given shortage of foreign workers. Besides, we introduce FY23F earnings forecast of RM41.3m with 12.4% yoy growth.

Valuation/Recommendation

Maintain BUY call on Wellcall with a lower target price of RM1.20 (RM1.22 previously). Our valuation is now pegged at PE of 16.2x FY22F EPS of 7.4 (7.6sen previously), which is slightly higher than 5 years +2 standard deviation PE of 16x.

We favour the stock for its: 1) strong margins and healthy cash position; 2) hose is widely used in wide range of 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.

Source: JF Apex Securities Research - 1 Dec 2021