Results

• Wellcall posted its 2Q23 revenue of RM50.1m which dropped 4.7% qoq but rose 16.7% yoy. On the other hand, 2Q23 net profit surged by 58.2% qoq and 61.1% yoy respectively to RM12.8m.

• Results beyond expectation. Wellcall's revenue for 6M23 reached RM102.7m, which represents 57.9% of our forecast and 58.9% of the street’s forecast. Additionally, its 6M23 net earnings amounted to RM20.9m, accounting for 58.3% of our estimate and 60.2% of the street’s estimate.

• Steady QoQ. The group achieved a higher PBT of RM16.9m in 2Q23, compared to RM11.8m in the previous quarter, reflecting a qoq increase of 43.4%. This growth can be primarily attributed to higher closing inventories that are planned to be shipped out in the following reporting period. However, revenue experienced a qoq decline of 4% to RM50.1m. This decrease was a result of customers rescheduling deliveries during the festive season holidays.

• Solid YoY performance as demand strengthens. 2Q23 revenue of RM50.1m, indicating a year-on-year growth of 16.7% compared to the same period in 2Q22. This robust performance can be attributed to the Group's ability to capture an increased global market share, driven by growing demand for industrial rubber hoses. Consequently, PBT experienced a significant surge of 50.0% year-on-year, reaching RM16.9m in 2Q23, compared to RM11.3m in 2Q22.

• As of 6M23, Wellcall has not incurred any borrowings. This indicates that the Group has significant capacity for expansion if the need arises.

• Wellcall's cash balance level currently stands at RM54.7m, representing a 7.0% increase from the financial year end of 2022.

• The management has declared a dividend in the current quarter. Wellcall has announced a second interim dividend of 1.8 sen per share, bringing the total dividends declared up until 6M23 to 3.2 sen per share. This total dividend payout is aligned with our expectation of 6.1 sen per share, yielding at 5.4%.

Comments

• Looking forward, the management of Wellcall expresses optimism that the Group will maintain its resilience and sustain its market share and positioning, despite the challenges present in the global economy. In order to ensure long-term success, Wellcall will continue to focus on cost optimization and strive to improve operational efficiency.

• We maintain a positive outlook on Wellcall's low- and medium-pressure hoses, as there is a high demand from customers. This translates into a sustainable and expanded market position for the company.

Earnings Outlook / Revision

• We did not revise our net earnings estimates as it is well aligned with our growth assumptions for Wellcall. As such, FY23F net earnings is at RM35.8m, and FY24F net earnings are at RM38.5m.

Valuation / Recommendation

• We maintain a BUY call for Wellcall with the same target price of RM1.32.

• Our valuation is pegged at PE multiple of 18.4x FY23F EPS of 7.2 sen, which is higher than its 3Y +1 Std Dev of 17.6x but lower than its 3Y +1.5 Std Dev.

• Our target price indicates a potential upside of 17.2% from the current price of RM1.13.

• However, in order to account for the potential risks associated with increasing raw material costs, operating expenses, and global economic tension, we have chosen not to assign a PE multiple higher than 18.4x. This allows us to be cautious and prudent in our valuation of Wellcall.

Source: JF Apex Securities Research - 31 May 2023