By SHAHEERA AZNAM SHAH
WELLCALL Holdings Bhd’s partnership with Swedish-based Trelleborg AB to manufacture and sell composite hose and fittings will be the local manufacturer’s new catalyst for growth.
The new composite hose production plant is within the vicinity of Wellcall’s extrusion and mandrel production plant and is on track to commence operations by end-2020, Inter-Pacific Research Sdn Bhd noted.
“We believe Wellcall’s joint venture (JV) with Trelleborg is its new growth catalyst with the new technologically advanced product that offers additional avenues to the company’s product innovation.
“The new plant will have two production lines and has ample room to expand up to four lines,” it said in a recent report.
It has not concluded any earnings forecast yet for the new JV as there will be a gestation phase which will impact estimates.
The country’s largest manufacturer of low to medium pressure industrial rubber hoses formed a JV with Trelleborg in January last year with an initial capital investment of RM9.2 million.
Inter-Pacific Research also upgraded its recommendation on Wellcall to ‘Buy’ from ‘Neutral’ previously, with a higher target price of 99 sen as the firm registered a lower revenue shortfall in its recent quarterly results.
“Our upgrade comes from lower than expected revenue shortfall from the global pandemic and a price-earnings ratio upgrade to reflect an earlier than expected demand recovery.
“Wellcall’s growth catalyst lies in its lean and efficient management that translates into higher margins and sustainable growth in the hose replacement market,” it said.
Risks to the research house’s valuation include raw material and commodity prices, foreign exchange rate volatility and the current global economic slowdown.
It said Wellcall has cautioned muted revenue growth for the second half of the financial year ending Sept 30, 2020 (2HFY20).
“The shortfall is due to the challenging trade environment, combined with logistical disruptions.
“We envisage the firm’s gross profit margin to consolidate from a high base in 2HFY20 due to average sale price revisions coming from higher raw material prices and competition,” Inter-Pacific Research said.