WELLCAL (7231) : Wellcall Holdings - Enjoying lower rubber prices
Target RM1.73 (Stock Rating: HOLD)
At 102% of our FY14 net profit forecast, Wellcall’s 12MFY14 net profit was in line with our expectations. We maintain our EPS forecasts and add new FY17 numbers. With the year-end ahead, we roll forward to CY16, pushing up our target price to RM1.73, based on an unchanged 15.9x CY16 P/E (at a 10% discount to Hartalega’s target P/E). However, the stock remains a Hold as valuations are not cheap but dividend yields above 5% should provide some support for the share price. We advise investors to switch to Karex which has a more robust earnings growth outlook.
12MFY14 net profit up 20%
Wellcall’s 12MFY14 revenue rose 11% due to demand from markets worldwide (except South America), while net profit increased by a higher 20% yoy, mainly due to lower rubber prices and greater economies of scale. SMR20 rubber was down close to 40% in the past year, with the current price at around 500sen/kg. The company declared a final 2sen DPS, in line with our expectations. YTD, 8sen DPS has been declared, a 100% net dividend payout ratio.
Sales growth from most markets
The company experienced higher demand from most markets worldwide (refer to Figure 1). Only South America orders declined during the financial year. Asia remains its largest market, contributing 21% of Group turnover. However, the fastest growing market was the USA/Canada region, with FY14 sales up 53% yoy. USA/Canada (sales of RM28m) was the second largest market for Wellcall in FY2014. If the strong USD is sustained in FY15, this market could emerge as the top revenue contributor for the company.
New factory up by mid-2015
Wellcall’s new plant is expected to be ready for commercial production in mid-2015, with earnings from the new factory kicking in from FY2016 onwards. The new plant is expected to boost the group’s mandrel hose production capacity by 50% to around 38,000 tonnes p.a. Depending on demand, it might take the company 2-3 years to fill up its new capacity. Wellcall is financially strong, with its RM41m in cash (RM0.12 net cash per share) at end-Sep. However, to maintain its 90-100% net dividend payout ratio, the company is expected to take up short-term borrowings to fund the RM40m capex for its new plant.
Source: CIMB Daybreak - 01 December 2014
Target RM1.73 (Stock Rating: HOLD)
At 102% of our FY14 net profit forecast, Wellcall’s 12MFY14 net profit was in line with our expectations. We maintain our EPS forecasts and add new FY17 numbers. With the year-end ahead, we roll forward to CY16, pushing up our target price to RM1.73, based on an unchanged 15.9x CY16 P/E (at a 10% discount to Hartalega’s target P/E). However, the stock remains a Hold as valuations are not cheap but dividend yields above 5% should provide some support for the share price. We advise investors to switch to Karex which has a more robust earnings growth outlook.
12MFY14 net profit up 20%
Wellcall’s 12MFY14 revenue rose 11% due to demand from markets worldwide (except South America), while net profit increased by a higher 20% yoy, mainly due to lower rubber prices and greater economies of scale. SMR20 rubber was down close to 40% in the past year, with the current price at around 500sen/kg. The company declared a final 2sen DPS, in line with our expectations. YTD, 8sen DPS has been declared, a 100% net dividend payout ratio.
Sales growth from most markets
The company experienced higher demand from most markets worldwide (refer to Figure 1). Only South America orders declined during the financial year. Asia remains its largest market, contributing 21% of Group turnover. However, the fastest growing market was the USA/Canada region, with FY14 sales up 53% yoy. USA/Canada (sales of RM28m) was the second largest market for Wellcall in FY2014. If the strong USD is sustained in FY15, this market could emerge as the top revenue contributor for the company.
New factory up by mid-2015
Wellcall’s new plant is expected to be ready for commercial production in mid-2015, with earnings from the new factory kicking in from FY2016 onwards. The new plant is expected to boost the group’s mandrel hose production capacity by 50% to around 38,000 tonnes p.a. Depending on demand, it might take the company 2-3 years to fill up its new capacity. Wellcall is financially strong, with its RM41m in cash (RM0.12 net cash per share) at end-Sep. However, to maintain its 90-100% net dividend payout ratio, the company is expected to take up short-term borrowings to fund the RM40m capex for its new plant.
Source: CIMB Daybreak - 01 December 2014
