Wellcall Holdings Bhd - Dragged By Weaker Demand
Thu, 29-May-2025 06:56 am
by Research Team • Apex Research

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WELLCAL (7231)

Target Price (RM)

1.720

Recommendation

Buy

  • Wellcall’s 2QFY25 core net profit of RM8.2m (-38.0% qoq, -30.3% yoy), bringing 6MFY25 core net profit to RM21.5m (-15.5% yoy) came below expectations, accounting for 39.4% of our and 38.8% of consensus full-year forecasts.

  • 2QFY25 CNP fell 30.3% yoy, following a 10.2% revenue contraction, dragged by softening in demand of industrial rubber hose.

  • Plant 3 expansion remains on track in Jun 2025 will boost total installed capacity by additional c.20% and is expected to contribute to overall production efficiency.

  • Post earnings revision, we re-iterate BUY recommendation with lower target price of RM1.72, based on 17.0x P/E multiple pegged to revised FY26F EPS of 10.1 sen, ascribed with three-star ESG rating.

 

Results below expectations. 2QFY25 core net profit (CNP) came in at RM8.2m, bringing 6MFY25 CNP to RM21.5m (-15.5% yoy). The results came below expectations, representing only 39.4% of our estimates and 38.8% of consensus forecast respectively. The earnings miss was primarily attributable to lower-than-expected sales along with unfavourable USD/MYR rate and higher depreciation charges.

 

YoY. 2QFY25 CNP recorded a contraction of -30.3% yoy to RM8.2m, dragged down by weaker demand from the global slowdown in industrial rubber hose industry. Revenue for the quarter slipped -10.2% yoy to RM44.1m – the weakest since 2QFY22. 

 

QoQ. 2QFY25 CNP (-38.0% qoq) stood at RM8.2m, pressured by an extended slowdown in demand from the low and medium pressure industrial rubber hose industry globally. Revenue for the quarter fell -9.5% qoq to RM44.1m.

 

Dividend. A second interim dividend of 1.8 sen/share, payable on 20 Jun 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. Cut our FY25F/FY26F CNP forecasts by 16.9%/14.4% respectively after revising for a weaker demand for industrial rubber hose market as global manufacturing activities remain sluggish and a slight contraction in margins assumption arising from the weaker USD/MYR exchange rate given that c.90% of sales are derived from export markets.

 

Valuation. Re-iterate our BUY recommendation on WELLCAL with a lower target price of RM1.72 (from RM2.00), by pegging 17.0x P/E multiple to revised FY26F EPS of 10.1 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. Weaker-than-expected global demand.

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