Wellcall Holdings Berhad - Rubber Hose From Pusing

Company : Wellcall Holding Berhad

Business :

Manufacture and sales of rubber hose to various industries. The factory is located in a small town of Pusing in Perak about 15km from Ipoh. It is Taiwanese managed company. 90% of the business is for export.

Image source: https://valueinvestasia.com/why-is-wellcall-holdings-berhad-a-favourite-among-value-investors/

Fundamental :

Net cash company with RM56 million in the bank as per 2020 annual report. This represent 24 cents per share.

No growth in term of CAGR on both revenue and PAT. Net profit margin is reasonable at 22%.

5 years revenue

Small cap company with revenue below RM200 million and profit margin of around 20%. Peak revenue is only RM170 million back in 2018 and 2019

 

Export business:

 

Geographical Breakdown in revenue:

It seems to have a balance spread of revenue across all continents with USA/Canada contribute the most.

 

 Latest Q3 Result

 

 

Revenue dropped in Q3 compared to Q2 but improved when compared to Q3 previous year. The drop was due to COVID lockdown. Coming Q4 will drop due to FMCO but the worst seem over. Hopefully revenue can go back to pre-COVID level in 2019.  

 

Prospect:

Company had entered into a JV with Trelleborg, a Swedish company to manufacture and sell composite hose but project seems delayed due to COVID.

 

 

Q&A during AGM this year on Trelleborg.

Company purchased a piece of land and this for rental to Trelleborg. See below.

The business model is resilient and consistence. There is potential of capital gain when global spending especially Oil and Gas sector is back to normal. Company also benefits from USD appreciation. It is definitely a recovery play for this company.

 

Risk :

• Raw material of rubber is going up but I think the effect will be small and company can pass onto customers easily.
• JV with not profitable and incur lost for initial few years.

 

Dividen

Customer is consistently paying dividen every quarter with pay out ratio of at least 50%. Forecast coming year will be 5.6 cents (RM28 million) which is 5.6% based on today share price of RM1.00.

 

My view on share price:

Price at pre-COVID level is RM1.30 back in 2019. Price is now sideway at RM1.00 with increasing volume. Something is brewing? RM1.20 is within reach if business back to normal.

 

 

Rubber hose is definitely not a sexy business like EV or semiconductor but it is stable and there is a potential capital gain of 20% when business get back to normal. At time of writing, I do have some WellCal shares to spread my portfolio.