Company Background. Wellcall Holdings (Wellcall) is the largest industrial rubber hose manufacturer in Malaysia with a global presence in over 70 countries. The group's primary business segment revolves around the manufacture and sale of rubber hoses & related products. Its diverse product range caters to various application markets, including water, oil & gas, welding, automotive, abrasion, marine, food grade, and chemical sectors. Wellcall mainly derives its revenue from exports, with 92% coming from international markets and the remaining 8% from local sales in FY23.

Prospects. (i) Anticipate robust global sales growth for industrial rubber hoses as the group achieved a 25% increase in FY23 exports. This surge was propelled by strong performances in key regions, including the Middle East (+50% YoY), USA/Canada (+39% YoY), Australia/New Zealand (+38% YoY) and South America (+24% YoY), (ii) Investing in automation to enhance production efficiency, WellCall is currently expanding one of its plants to increase capacity and streamline operations. The expansion is targeted for completion by March 2024, with a capital expenditure of RM10mil, and (iii) Wellcall has consistently distributed dividends in previous financial years, in accordance with its policy to maintain a dividend payout ratio of at least 50% of annual net profit.

Financial Performance. In FY23, Wellcall posted a higher revenue of RM217mil (+23% YoY) with a PAT of RM55.3mil (+66% YoY). This was primarily driven by growing orders from both local and export markets, fueled by the increasing momentum of global demand for industrial rubber hoses. Valuation. Wellcall is currently trading at an attractive FY24F P/E of 15.7x, which is lower than Bursa Industrial Production Index’s 23.7x. As a comparison, China-based Chengdu Shengbang Seals Co., which manufacturers/distributes rubber polymer products, sealing insulation products and other related products, trades at a much higher trailing P/E of 27.8x.

Technical Analysis. Wellcall broke out from its 2-month bullish flag pattern a few sessions ago, implying that its previous uptrend may have resumed. With 20-day EMA remaining above the 50-day EMA since a bullish crossover in early Jun 2023, upward momentum may persist in the near term. A bullish bias may emerge above the RM1.70 level, with stop-loss set at RM1.53, below the 5 Jan low. Towards the upside, near-term resistance level is seen at RM2.00, followed by RM2.10.

Source: AmInvest Research - 5 Feb 2024