Wellcall Holdings Bhd WELLCAL FYE22Q4
Higher revenue to be offset by temporary cost pressures
Last Updated: 7 Jan 2023; Analysis is based on FYE22 results and FYE22Q4 interim results.
❗Read me first❗
- At the time of writing this page, I owned shares of WELLCAL.
- I do my best to write this analysis as objective as possible. No point I lie to myself, and, no offence, I don’t need you to push up the stock prices.
- Fair value estimates and earnings projection are not included here, so you won’t perceive buy/sell recommendation.
- I agree to disagree, I welcome tactful discussion and I respect your view (no matter what). Market moves because of different perspectives.
Click to view filing of the FYE2021 Annual Report in Bursa Announcement and filing of the FYE2022 Q4 Report in Bursa Announcement.
Strong revenue growth due to strong demand
WELLCAL recorded revenue of FYE2022-Q4: MYR46.9M, approx. 1% on a QoQ basis. The export market and local market contributed approximately 90% and 10% respectively to the WELLCAL’s revenue. The slight decrease in revenue for the current quarter was mainly arising from resheduling delivery of shipment from certain customers.
On YoY basis, WELLCAL recorded revenue of FYE2022: MYR176.7M, an increase of MYR19.7M or approx. 13% from FYE2021: MYR157.0M. The increased in export market of 10% and local market by 39% YoY was mainly due to continuous recovery of global and local economy sentiment in the low and medium pressure industrial rubber hose market.
I believe that the revenue growth will continue to be strong.
Wellcall continues to see strong demand especially from the US/Canada market. At this juncture, the company has healthy orderbook visibility, with orders filled for the next four to five months. We gather that these orders are from both new and existing customers, and Wellcall expects the pick-up in global economy to continue supporting demand for its products. Meanwhile, its JV with Trelleborg is also witnessing better demand from customers. It is producing samples and testing products for customers that have indicated interest.
CGS-CIMB 2 Jun 2022
Higher input costs and increase in freight charges led to margin compression
Higher input costs and increase in freight charges led to margin compression, from FYE2020-Q4: 41.6% to FYE2022-Q4: 36.0%. As shown in below charts, there was significant increase in rubber prices in Feb-May 2022. Container freight rates were through the roof and this exacerbated margin compression encountered by WELLCAL.
The margin compression should be a temporary issue because:
- The rubber prices started to decline since Jun-22 (Jun-22: MYR710.29/KG to Dec-22: MYR585.81/KG for SMR 20).
2. Global container freight rate index has been declining from the peak >USD 10K to <USD 2.5K in Nov 2022.
3. Freight rates have been declining significantly since Mar-22. Although Sep-22 rates were still higher than the rates before pandemic, I believe that the rates will be rationalised in the next couple of months. Keep my fingers crossed.
WELLCAL action plans to mitigate the high raw material costs
WELLCAL aims to mitigate the high raw material costs
i) conducting bulk purchase for discount and price negotiation with suppliers, ii) holding high inventory levels, and iii) raising its selling prices to pass on the additional cost
CGS-CIMB 2 Jun 2022
High dividend pay out, cash rich, no debt
Refer to WELLCAL annual financial performance, consistently >80% dividend payout, >20% ROIC, >20% CROIC and no debt, WELLCAL is a cash cow.
Attractive valuations
WELLCAL Financial Performance
| PROFITABILITY and EFFICIENCY | 2015-09-30 | 2016-09-30 | 2017-09-30 | 2018-09-30 | 2019-09-30 | 2020-09-30 | 2021-09-30 | 2022-09-30 |
|---|---|---|---|---|---|---|---|---|
| Revenue | 158,112 | 134,470 | 159,133 | 171,124 | 170,109 | 134,920 | 157,016 | 176,701 |
| Growth YoY | -15.0% | 18.3% | 7.5% | -0.6% | -20.7% | 16.4% | 12.5% | |
| EBITA | 42,684 | 38,422 | 45,734 | 41,346 | 46,877 | 37,034 | 44,347 | 43,405 |
| Growth YoY | -10.0% | 19.0% | -9.6% | 13.4% | -21.0% | 19.7% | -2.1% | |
| EBITA Margin % | 27.0% | 28.6% | 28.7% | 24.2% | 27.6% | 27.4% | 28.2% | 24.6% |
| Net Operating Profit After Tax | 32,440 | 29,201 | 34,758 | 31,423 | 35,626 | 28,146 | 33,703 | 32,988 |
| Growth YoY | -10.0% | 19.0% | -9.6% | 13.4% | -21.0% | 19.7% | -2.1% | |
| Invested Capital | 114,752 | 116,149 | 112,086 | 107,485 | 116,400 | 120,864 | 127,134 | 124,496 |
| Growth YoY | 1.2% | -3.5% | -4.1% | 8.3% | 3.8% | 5.2% | -2.1% | |
| Return on Invested Capital % | 28.3% | 25.1% | 31.0% | 29.2% | 30.6% | 23.3% | 26.5% | 26.5% |
| Cash Conversion Cycle | 83 | 72 | 63 | 69 | 55 | 52 | 73 | 85 |
| Days In Inventory | 72 | 74 | 54 | 59 | 52 | 60 | 77 | 94 |
| Days In Receivables | 30 | 20 | 27 | 29 | 19 | 15 | 15 | 8 |
| Days Payable Outstanding | 19 | 22 | 17 | 18 | 16 | 23 | 20 | 17 |
| Earnings per share (Reported) | 0.124 | 0.094 | 0.073 | 0.064 | 0.074 | 0.059 | 0.069 | 0.067 |
| Growth YoY | -24.3% | -22.3% | -13.2% | 16.3% | -20.2% | 16.3% | -2.8% | |
| Earnings per share (Adjusted for capital changes) | 0.083 | 0.063 | 0.073 | 0.064 | 0.074 | 0.059 | 0.069 | 0.067 |
| Growth YoY | -24.3% | 16.5% | -13.2% | 16.3% | -20.2% | 16.3% | -2.8% | |
| LEVERAGE and COVERAGE | 2015-09-30 | 2016-09-30 | 2017-09-30 | 2018-09-30 | 2019-09-30 | 2020-09-30 | 2021-09-30 | 2022-09-30 |
| Total Debt | 17,612 | 18,258 | 8,366 | 0 | 0 | 0 | 0 | 0 |
| Growth YoY | 3.7% | -54.2% | -100.0% | — | — | — | — | |
| Net Debt | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest Expense | (483) | (977) | (933) | (1,545) | (243) | (195) | (185) | (168) |
| Growth YoY | 102.5% | -4.5% | 65.6% | -84.3% | -19.7% | -5.3% | -9.2% | |
| Debt / EBITDA | 0.4 x | 0.4 x | 0.2 x | 0.0 x | 0.0 x | 0.0 x | 0.0 x | 0.0 x |
| EBITA/Interest | 88.4 x | 39.3 x | 49.0 x | 26.8 x | 192.9 x | 189.6 x | 239.7 x | 258.4 x |
| RCF to Net Debt % | — | — | — | — | — | — | — | — |
| FCFF to Debt % | 42.8% | 164.3% | 434.7% | — | — | — | — | — |
| CASH FLOW | 2015-09-30 | 2016-09-30 | 2017-09-30 | 2018-09-30 | 2019-09-30 | 2020-09-30 | 2021-09-30 | 2022-09-30 |
| Unlevered Free Cash Flow | 7,539 | 29,991 | 36,365 | 28,279 | 41,578 | 34,769 | 31,783 | 33,488 |
| Growth YoY | 297.8% | 21.3% | -22.2% | 47.0% | -16.4% | -8.6% | 5.4% | |
| Cash Return on Invested Capital % | 6.6% | 25.8% | 32.4% | 26.3% | 35.7% | 28.8% | 25.0% | 26.9% |
| Dividend Payout % | 73.90% | 97.60% | 84.23% | 85.75% | 76.45% | 83.95% | 81.64% | 107.94% |
| Dividends per share (Reported) | 0.092 | 0.092 | 0.062 | 0.054 | 0.056 | 0.050 | 0.056 | 0.072 |
| Growth YoY | -0.0% | -33.0% | -11.6% | 3.7% | -12.4% | 13.1% | 28.6% | |
| Dividends per share (Adjusted for capital changes) | 0.061 | 0.061 | 0.062 | 0.055 | 0.057 | 0.050 | 0.056 | 0.072 |
| Growth YoY | -0.0% | 0.5% | -11.6% | 3.7% | -12.4% | 13.1% | 28.6% | |
| Free Cash Flow per share | 0.015 | 0.060 | 0.073 | 0.057 | 0.083 | 0.070 | 0.064 | 0.067 |
| Growth YoY | 297.8% | 21.3% | -22.2% | 47.0% | -16.4% | -8.6% | 5.4% |
| Fiscal year ends 30 Sept | Sept 2022 (FQ4) | Jun 2022 (FQ3) | Mar 2022 (FQ2) | Dec 2021 (FQ1) | Sept 2021 (FQ4) | Jun 2021 (FQ3) | Mar 2021 (FQ2) | Dec 2020 (FQ1) |
|---|---|---|---|---|---|---|---|---|
| Revenue | 46.94M | 47.13M | 42.96M | 39.67M | 47.50M | 35.76M | 38.23M | 35.52M |
| Growth YoY | -1.18% | 31.79% | 12.38% | 11.67% | 27.44% | 35.87% | 19.68% | -9.80% |
| Cost of Goods Sold | 30.27M | 29.81M | 26.45M | 26.53M | 28.86M | 22.68M | 22.84M | 20.82M |
| Growth YoY | 4.87% | 31.45% | 15.82% | 27.41% | 32.51% | 32.21% | 13.75% | -15.61% |
| Gross Profit | 16.67M | 17.32M | 16.51M | 13.14M | 18.64M | 13.08M | 15.39M | 14.70M |
| Growth YoY | -10.56% | 32.39% | 7.27% | -10.63% | 20.31% | 42.72% | 29.70% | -0.06% |
| Operating Expenses | 6.13M | 3.33M | 5.08M | 3.96M | 4.60M | 3.55M | 3.46M | 3.84M |
| Growth YoY | 33.34% | -6.12% | 46.96% | 3.12% | 28.77% | 10.15% | 23.28% | 13.50% |
| Operating Income | 10.54M | 13.99M | 11.43M | 9.18M | 14.04M | 9.54M | 11.93M | 10.86M |
| Growth YoY | -24.95% | 46.71% | -4.23% | -15.49% | 17.78% | 60.37% | 31.69% | -4.11% |
| Other Income (Expense) | - | - | - | - | - | - | - | - |
| Growth YoY | - | - | - | - | - | - | - | - |
| Net Profit | 7.56M | 10.78M | 7.93M | 6.95M | 10.05M | 7.09M | 8.79M | 8.23M |
| Growth YoY | -24.72% | 52.05% | -9.82% | -15.60% | 11.60% | 81.37% | 19.96% | -9.77% |
| Diluted EPS | 0.02 | 0.02 | 0.02 | 0.01 | 0.02 | 0.01 | 0.02 | 0.02 |
| Growth YoY | -24.75% | 52.11% | -10.17% | -15.15% | 11.60% | 79.75% | 20.41% | -9.84% |
| Diluted Average Shares | 497.95M | 497.95M | 497.95M | 497.95M | 497.95M | 497.95M | 497.95M | 497.95M |
| Normalised EBITDA | 11.73M | 15.19M | 12.66M | 10.41M | 15.30M | 10.81M | 13.29M | 12.25M |
| Margin Analysis | ||||||||
| Gross Margin % | 35.52% | 36.75% | 38.42% | 33.13% | 39.24% | 36.59% | 40.25% | 41.39% |
| Operating Expenses % | 13.07% | 7.07% | 11.83% | 9.99% | 9.68% | 9.92% | 9.05% | 10.81% |
| Operating Income % | 22.45% | 29.69% | 26.60% | 23.14% | 29.56% | 26.67% | 31.21% | 30.58% |
| Net Profit % | 16.11% | 22.86% | 18.46% | 17.51% | 21.15% | 19.82% | 23.00% | 23.17% |
Corporate Development
- 25 Oct 2022
To cater for the strong demand for its products, Wellcall aims to grow its production volume. It expects its utilisation rate to average 75% from 4QFY22F onwards (vs. an estimated 65% in 1HCY22), further backed by an improvement in labour shortage issues. Wellcall expects the first batch of new foreign workers to arrive in Oct 22 (60-80 out of a total of 150 new workers approved by government). It expects to have all the remaining new workers onboard by 1QFY23F, growing total workforce by 25% to an estimated 450 workers. Note that it currently has a workforce of c.360, of whom 28-36% (100-130 workers) are foreign.
CGS-CIMB 24 Oct 2022
- 30 Sep 2022 – Appointment of new External Auditors.
- 15 Feb 2022 – Wellcall to focus on high-mix, low-volume manufacturing
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