Wellcall Holdings Berhad - In-line with expectations
Fri, 29-Nov-2024 07:22 am
by Kenneth Leong • Apex Research

Counter

WELLCAL (7231)

Target Price (RM)

1.90

Recommendation

Buy

Summary

  • WELLCAL’s 4QFY24 core net profit fell -24.6% yoy and -3.0% qoq to RM13.2m (after adjusting for unrealised forex losses of RM5.4m), bringing 12MFY24 core net profit at RM52.1m (-7.3% yoy) which came in line at 97.5% and 98.2% of ours and consensus expectations respectively.

  • With more favourable exchange rate and stability in material prices, we expect better operational landscape which potentially translate to improve margins and bottomline in upcoming quarter.

  • Re-iterate our BUY recommendation on WELLCAL with unchanged target price of RM1.90, based on 17.0x P/E multiple pegged to FY25F EPS of 11.2 sen. 

     

Results Review

  • Results review. 4QFY24 core net profit (CNP) fell -24.6% yoy and -3.0% qoq to RM13.2m (after adjusting for unrealised forex losses of RM5.4m), dragged down by higher operational expenses as well as higher effective tax rate at 34.5% vis-à-vis 22.7% in the previous corresponding quarter. Revenue for the quarter stood at RM56.7m (-2.8% yoy, +10.6% qoq). A single tier interim dividend of 1.2 sen per share along with a special interim dividend of 1.0 sen per share (both payable on 20 Dec 2024) was declared.

 

  • Within expectations. 12MFY24 core net profit at RM52.1m (-7.3% yoy) accounted to 97.5% of our core net profit forecast at RM53.4m and was at 98.2% of consensus forecasted core net profit of RM53.0m.

 

  • Operations Highlights. In 4QFY24, export market remains as the biggest contributor at RM51.5m (90.9% of total revenue), while local market makes up to the remainder at RM5.1m (9.1% of total revenue). Meanwhile, cash level remains healthy at RM69.3m vs. RM77.5m in 3QFY24.

 

  • Industry Highlights. Nitrile price normalised in recent months at USD0.92/kg in November 2024 vs. USD0.99/kg in August 2024 in tandem with the lower Butadiene prices. However, natural rubber price remained elevated at USD1.53/kg in November vs. USD1.41/kg in August 2024 as demand remain strong. Looking ahead, we expect prices to stabilise amid the downward pressure in crude oil prices along with improving supply dynamics, while natural gas price softens 

 

  • Outlook. Expansion of Plant 3 (scheduled end-2024) was delayed with production to take place only in mid-2025. Meanwhile, deferred orders stemmed from the Red Sea crisis may continue to normalise in subsequent quarters. With more favourable exchange rate and stability in material prices, we expect better operational landscape which potentially translate to improve margins and bottomline in upcoming quarter. Still, we opine that net margins are expected remain below the 30% threshold.

 

  • Valuation. No changes to our earnings forecast. We re-iterate our BUY recommendation on WELLCAL with an unchanged target price of RM1.90, based on 17.0x P/E multiple pegged to FY25F EPS of 11.2 sen. 

 

  • Risk. Fluctuation in raw material prices (rubber price). Exposure to foreign exchange risk given that majority of the sales are denominated in USD. Slower-than-expected plant expansion may dampen earnings growth prospects.

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