Wellcall Holdings Bhd - Recovery towards pre-Red Sea crisis
Mon, 24-Feb-2025 07:30 am
by Team Coverage • Apex Research

Counter

WELLCAL (7231)

Target Price (RM)

2.040

Recommendation

Buy

Summary

  • Wellcall’s 1QFY25 core net profit fell -2.8% yoy, but rose +69.6% qoq to RM13.3m, came within expectations, accounted to 23.9% and 25.1% of ours and consensus expectations respectively.

  • Deferred orders from the Red Sea crisis have started to normalise which will result in stability in bottomline in subsequent quarters. However, while core net margins expansion will be capped by higher raw material prices.

  • Re-iterate BUY recommendation with higher target price of RM2.04, based on 17.0x P/E multiple pegged to rolled-over FY26F EPS of 12.0 sen, ascribed with three-star ESG rating.

 

Results within expectations. 3MFY25 core net profit at RM13.3m (-2.8% yoy) came within expectations, accounting to 23.9% of our core net profit forecast at RM55.6m and was at 25.1% of consensus forecasted net profit of RM53.0m.

 

YoY. 2QFY24 core net profit recorded mild contraction of -2.8% yoy to RM13.3m, dragged down by weaker demand from the global slowdown in industrial rubber hose industry. Revenue for the quarter slipped -7.2% yoy to RM48.7m – the weakest since 4QFY22. 

 

QoQ. Core net profit (+69.6% qoq) stood at RM13.3m, recovered back towards pre-Red Sea Crisis level as deferred shipments from recent quarters begun to normalise. Revenue for the quarter, however, slipped -48.7% qoq to RM48.7m.

 

Dividend. A first interim dividend of 2.0/share, payable on 21 Mar 2025 was declared.

 

Outlook. Production testing for line expansion (one advanced machine from Italy for mandrel line) in Plant 3 remains on track in Jun 2025. Upon completion of the expansion, total installed capacity is expected grow c.20% and is expected to contribute to overall production efficiency.

 

Earnings Revision. Given that the reported earnings are deemed within expectations, we kept our forecast unchanged.

 

Valuation. Re-iterate our BUY recommendation on WELLCAL with a higher target price of RM2.04, by pegging 17.0x P/E multiple to rolled-over FY26F EPS of 12.0 sen and ascribed with 0% ESG factored premium/discount based on three-star ESG rating.

 

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.

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