Financial Highlights
5 years revenue and PBT CAGR is about 3.2% and 2.0% respectively. Which is not considered as an aggressive growing company, the management is taking a steady and slow pace in managing its business. Gross margin for FY 2018 is around 32%, in this kind of competitive market, Wellcall can still sustain such high gross margin is worth to praise. Also, management have enough room to compete with competitors to secure the market pie. Dividend yield stands at 4.7% with the present share price of RM1.17. Book value to price is 18.5%. The current price is not attractive enough, slow and steady growth company usually will not bring up the share price value, 4.7% of annual return sounds less interesting, unless it is for long term investment. At the moment, the share price is still expensive.
Net earning per share for FY18 has reduced by 13% compared to FY17. The main reason is due to pressure from the raw materials prices that continue to fluctuate which has resulted the group to incur higher cost of production.
Comparing latex price for 2017 to 2018, FY18 was having lower material cost compared to FY17. We can eliminate the risk from fluctuation in rubber price, as the group is enjoying lower material cost.
Some hoses require synthetic rubber which produced from crude oil as raw material. We reckon that the high material cost incurred in FY18, resulting a lower PBT achieved in this financial year is partly from synthetic rubber which related to crude oil price. The crude oil price graph has shown that the price was high during FY 18 compared to FY 17.
Market segment for Wellcall consists of export and local. The major export countries are USA/Canada contributing 28% of the export revenue, following with Europe 19%, Asia 17%, Australia/NZ 13%, Middle east 11%, South america 9% and Africa 2%.
Hence, foreign currency plays a main role in its revenue and PBT performance.
Strengthening of USD/RM by 10% will bring 4% increase in group's net profit.
The latest 2nd quarter report of FY 19
EPS for 1HFY19 is 3.54sen which has increased by 25% compared to preceding year. It has achieved 55% of the FY18 result.
If the demand for industrial rubber hoses continue to recover gradually from both emerging and developed economies, let's say we forecast a 3.2% growth for its business, the target EPS should be at 6.57sen.
We expect 2HFY19 should hit a minimum of 3.03sen EPS.
With the PE value at 17, the expected target price is about RM 1.12.
Hence, current share price is slightly above the TP. Continue to observe on the price movement.
Technical Comment
We forecast that the crude oil price will trend down toward the year end. Hence, raw material cost will see reducing for Wellcall.
Share price is still moving in a major bearish trend.
At this moment, Wellcall share price is not worth to accumulate. We will see the trend turn upward if USD strengthen and Crude oil price drop towards the end of the year.
Corporate news:
Wellcall charts another milestone when it inks a joint venture with Sweden’s Trelleborg Holding AB – a world leader in engineered polymer solutions provider.
This synergistic partnership will see Trelleborg transferring its technology and manufacturing know-how for the production of composite hose and fittings, enabling Wellcall to manufacture, market and distribute the hoses and expand its product offerings.
Currently, Wellcall produces extrusion, mandel, and spiral hoses in its three plants in Perak.
Industrial rubber hoses are used in construction, mining, automobile, oil and gas, marine, as well as the food and beverage industries.
Wellcall is in discussions with Trelleborg for the target production capacity and product pricing.
“Our focus this year will be to set up the composite hose manufacturing plant, targeted for commissioning by end-2019, with two production lines and auxiliary equipment.
“Composite hose is lightweight, flexible, pressure and vacuum-resistant, mainly used in the transfer of petroleum and chemical.
“It is also a cost-effective hose, as it does not require curing like rubber hoses,” says Huang.
The composite hose manufacturing plant will be built within the vicinity of Wellcall’s existing plant.
The initial issued and paid-up capital of the joint venture (JV) company, Trelleborg Wellcall Sdn Bhd, is US$2.2mil (RM9.2mil).
Trelleborg will own 51% equity in the JV company, while Wellcall the remaining 49% equity.
Both parties will be jointly liable for their respective shares of funding for the JV company.
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