• Maintain BUY (TP:1.90). Wellcall's FY23 PATAMI of RM56.5mn exceeded both our in-house and street estimates by 117.6% and 119.5%, respectively, driven by higher-than-expected orders from the export market. The Group has declared a fourth interim single-tier dividend of 1.80sen/share and a special dividend of 1sen/share. This brings the total dividend payout to 8.2sen/share for FY23, translating to a 4.9% dividend yield at the current share price. Revenue and PBT surged 3.8% QoQ and 2.5% QoQ, respectively, due to higher export sales to overseas markets as well as the local market. We have increased our FY24-25F earnings forecast by 3.2-1.1% to RM55.4mn-RM56.9mn, respectively, following new assumptions on sales volume and margin. We maintain a positive outlook for Wellcall, driven by the anticipated sustained global demand for its products and the stability of its export sales. Maintain a BUY call on Wellcall with higher TP of RM1.90 (RM1.73 previously) following our earnings upgrade. Our valuation is based on 5-year average PER of 17.3x that is pegged to FY24F EPS of 11.1sen. Our favourable view on the stocks is driven by healthy margin growth, favourable cash position, and attractive dividend yield.

• Key Highlight. Export sales to the Middle East have grown tremendously with a 50% YoY growth, followed by the USA/Canada (+39.2% YoY), Australia/New Zealand (+37.9% YoY), and South America (+23.6% YoY). Nonetheless, exports to Europe declined by 8% YoY, as business operations were challenging due to high energy costs, in our view. For local market, sales were flattish as compared to previous year.

• Forecast. We increase FY24-25F earnings forecast by 3.2-1.1% to RM55.4mnRM56.9mn respectively, following our new assumptions on sales volume and margin. Additionally, we introduce FY26F earnings assumption of RM66.5mn with 16.8% YoY growth.

• Outlook. With its robust market share in the industrial rubber hose sector, we continue to hold a positive outlook for Wellcall. We anticipate a sustained global demand for its products and express confidence in the stability of its export sales. Moreover, the Group's order book demonstrates a positive trajectory, with customer orders surging in response to the rebound in global demand for industrial hoses, indicating favourable prospects for the company's overall performance.

Source: BIMB Securities Research - 29 Nov 2023