Margins hit by higher input costs
? 1HFY9/22 core net profit of RM14.9m (-12.6% yoy) missed expectations at
38% of our estimate and 42% of Bloomberg consensus full-year forecast.
? While we expect Wellcall to continue to post higher sales volume from strong
demand, we expect its bottomline to be affected by higher input costs.
? Reiterate Hold with a lower TP of RM1.18 (15x CY23F P/E).
Earnings miss in 2QFY22; higher tax rate and surge in freight costs
2QFY9/22 core net profit came in at RM7.9m (-9.9% yoy), bringing 1HFY9/22 net profit to
RM14.9m (-12.6% yoy). This was below expectations at 38% of our and 42% of
Bloomberg consensus FY22F estimates, which we attribute to a higher-than-expected tax
rate and surge in distribution expenses (owing to a sharp surge in logistics cost). Wellcall
announced an interim dividend of 1.4sen/share for 2QFY22, bringing cumulative 1HFY22
dividend to 2.8sen (94% payout), within our expectation.
1HFY9/22 core net profit declined 12.6% yoy
1HFY22 revenue rose 12% yoy to RM82.6m, as it recorded increases in exports (+10.9%
yoy) and local sales (+23.8% yoy). However, 1HFY22 EBITDA margin fell 6.6% pts yoy
to 28%, which we attribute to higher input costs as well as a sharp surge in logisticsrelated costs. Accordingly, 1HFY22 core net profit waned to RM14.9m (-12.6% yoy).
Stronger qoq results in 2QFY22, thanks to higher export sales
On a qoq basis, 2QFY22 revenue and core net profit rose 8.3% and 14.1%, respectively.
This was due to: i) higher sales (export sales: +8.8% qoq; local sales: +3.9% qoq), thanks
to a ramp-up in production with the easing of Covid-19 lockdown measures, ii) ongoing
cost-control measures and iii) price hikes to pass on the higher input costs. Note that this
was despite Wellcall incurring a higher tax rate of 29.7% for the quarter (+6% pts qoq).
Robust demand; but with higher input costs and limited price hikes
In 2HFY22F, we expect demand for Wellcall’s rubber hoses to remain robust, backed by
an increase in business activities on the reopening of the global economy, especially in
the mining, water, and oil & gas industries (~50-60% of 1HFY22 revenue). However, this
is expected to be mitigated by a surge in input costs (55-65% of total cost) as well as
freight-related charges. We believe there is limited room to raise selling prices further if it
wants to maintain its competitive edge, given its position as an OEM manufacturer.
Retain Hold, with a lower TP of RM1.18 (15x CY23F P/E)
We lower our FY22-24F EPS by 6.3-17.6% to account for higher input costs, increase in
tax rate and higher distribution expenses. In tandem with our EPS cuts, we lower our TP
to RM1.18 (15x CY23 P/E, in line with its 5-year historical mean), but keep our Hold call.
While we like Wellcall for its strong fundamentals and the defensive nature of demand for
its products, we believe its current valuation (slightly above its 5-year mean) has already
priced in the positives. Share price will also be supported by its solid dividend yields of
4.0-5.6% (FY22-24F).