Results

• Wellcall posted a 1QFY23 revenue of RM52.6m which increased by 12.1% qoq (4QFY22: RM46.9m) and 32.6% yoy (1QFY22: RM39.7m). Also, bottomline marginally improved by 7.1% qoq and 16.6% yoy to stand at RM8.1m in the current quarter of 1QFY23.

• Results within estimates. Wellcall’s 1QFY23 revenue of RM52.6m was in-line with our/consensus which entails about 29.7%/28.4& of the full year forecast. Similarly, net profit of RM8.1m achieved 22.6%/21.5% of our/consensus full year earnings forecast.

• Decline QoQ and YoY margins. Net profit margins slid 0.7 ppts QoQ and 2.1 ppts YoY to 15.4% (1QFY22: 17.5%). This is due to a slight increase in cost of sales i.e. rising raw material cost

• Dividend declared. The Group has declared a 1st single tier dividend of 1.4 sen/share, making up 22.9% of our full year forecast dividend of 6.1 sen/share.

Comments

• Moving forward, the management is optimistic on the outlook with its ability to sustain the market share and positioning despite the headwinds in the global economy and cost pressure. To maintain growth in the long run, Wellcall will continue its operating cost management measures in respond to the fluctuation in supply and demand chain mechanism (rising in freight and raw material cost).

• We remain positive on Wellcall’s low- and medium-pressure industrial rubber hoses due to high demand from its customers, translating into sustainable and wider market base positioning.

Earnings Outlook / Revision

• No change to our FY23F and FY24F bottomline forecast at RM35.8m and RM38.5m, respectively.

Valuation / Recommendation

• We maintain the stock with BUY call. However, we lower our target price to RM1.32 (previously at RM1.46) with 15.1% upside, as we envisage a slower but stable earnings growth due to improving global market demand for industrial rubber hose.

• Our target price is pegged with 18.4x PE multiple with FY23F EPS of 7.2sen which is higher than its 3-year +1SD PE multiple but lower than its 3-year +2SD PE multiple at 20.5x.

• We did not ascribe more than 18.4x PE multiple to account for anticipate the consequences of increasing raw material cost and operating cost couple with the global economic tension.

Source: JF Apex Securities Research - 27 Feb 2023