WELLCAL (7231)

WELLCALL (7231) - Earnings Boost From Expansion

• Malaysia's largest manufacturer / exporter of industrial rubber hoses.

Wellcall Holdings is involved in the manufacturing of industrial rubber hoses for customers who are primarily in the biz of distributing such products to original equipment manufacturers (OEMs). 

Wellcall sells 2 types of hoses, which are mandel & extrusion hoses.

Mandrel hoses fetch higher margins, whose gross profit margins are btw 20% & 70% depending on product specification, with Asia being its largest export market.

• Demand for Wellcall's products likely to remain intact over the next few years due to its diversified customer base from various industries.

Wellcall carries a variety of rubber hoses that cater to various application markets, namely:-

1. air & water
2. welding & gas
3. oil & fuel
4. automobile
5. shipbuilding
6. F&B

Due to its offerings of a board range of products, the company has a diversified customer base, reducing its vulnerability to any downturn in any particular industry.

New plant to be up & running in Sep 2015. Management expects Wellcall's RM40m new plant to commence its operation by Sep 2015. This plant will focus solely on manufacturing mandrel hoses which make up more than half of Wellcall's sales & command higher margins than extrusion hoses, owing to the former's value-added process. The management expects the new plant to increase the existing mandrel hose manufacturing capacity by at least 100%. Phase 1 & 2 of the new plant will boost its total installed capacity by 70% to 56,100 tonnes from 33,000 tonnes.

• Strong Balance Sheet with a net cash pile of RM 39m.
• delivering strong ROE growth, which is above 30% for FY13 & FY14. With upcoming capital expansion, expect to continue to deliver double-digit ROEs. 

• Decent dividend yield of 5.3% / 6.4% for FY15 / FY16\

Wellcall has a generous dividend policy of paying a min 50% of its earning to shareholders. Historically, its dividend payout ratio has been more than 90% for the past 3 years.

RHB target price : RM 2.30 

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