WELLCALL Holdings Bhd is expecting double-digit sales growth in the financial year ending Sept 30, 2023 (FY23), driven by higher export sales, increase in production output and easing freight constraints.
Wellcall — which manufactures low and medium pressure industrial rubber hoses — is also set to see margin expansion in FY23, backed by favourable operating environment notably from lower input costs, weak ringgit and strong demand.
During a recent briefing, CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) said Wellcall indicated that the demand for its products remains robust with healthy orderbook visibility.
“This is mainly thanks to rising order volume from its customers, backed by rising industrial activities globally, easing of global shipping constraints and more competitive pricing (weak ringgit).
“We gather that its orderbook currently stands at three to four months, which is better than the pre-Covid-19 average of one to two (months).
CGS-CIMB Research also noted that since its fourth quarter 2022 (4Q22), Wellcall has seen a ramp-up in production volume.
“This is thanks to better production efficiency from an improvement in labour shortage issues, with the arrival of the first batch of foreign workers in October 2022 (60-80 out of a total of 150 new workers approved by the government); the remaining batch of foreign workers is expected to be onboard in March 2023.
“We understand most of these new hires are intended as replacements for foreign workers who have either returned home or are planning to do so,” it remarked.
CGS-CIMB Research estimates that Wellcall currently has a total workforce of some 440, of whom 30%-40% are foreigners. “We estimate that labour only accounted for 10%-15% of Wellcall’s Cost of Goods Sold (CoGS) in FY22,” it said..
On its joint venture (JV) with Swedish based Trelleborg Group to manufacture and sell composite hose, Wellcall recognised an impairment loss of RM2.9 million in 4Q22.
“Given the competitive nature of the composite hose market, Wellcall expects this JV to remain in a loss-making position at this juncture (we are estimating losses of RM1 million to RM1.5 million for FY23-FY25F).
“Nevertheless, Wellcall is in the midst of reformulating business strategies (improve product offering and marketing strategies) to lift the performance of this JV,” CGS-CIMB Research said.
The research house made no changes to its FY23-FY25F earnings per share (EPS) estimates, ‘Add’ call as well as target price of RM1.46 for Wellcall.
“We continue to like Wellcall for its robust earnings profile (three-year core EPS compound annual growth rate (CAGR) of 12.6%), solid dividend yields of 5.4%-6.8% (FY23-FY25F) and strong net cash position (RM62.8 million net cash at end-September 22),” it said. — TMR / pic source: wellcallholdings.com