Wellcall Holdings Bhd
WE are highlighting Wellcall (Fundamental: 3/3, Valuation: 2.1/3), again, as a beneficiary of the falling ringgit and commodity prices. 

The ringgit is now at its lowest level against the US dollar since the currency peg in 1998. Meanwhile, a broad range of commodities, from energy to metals and agriculture, are buckling under the pressure of sluggish global economic growth and rising supplies.

To recap, Wellcall manufactures industrial rubber hoses used across a broad swath of the economy — for air and water, welding and gas, oil and fuel, automobile, shipbuilding as well as food & beverage sectors. It has charted strong growth over the past 5 years.

The company exports more than 90% of its products. It also stands to benefit from lower raw material costs — the average bulk latex prices are now hovering near their lowest levels since May. 

Net profit for 9MFYSept2015 expanded 31.4% to RM28.4 million on the back of a 10.0% increase in revenue to RM119.8 million, boosted by lower raw material costs, favourable forex and economies of scale. A third interim dividend of 2.3 sen per share was declared yesterday, bringing dividends for the nine months to 6.9 sen. 

The company has maintained a debt-free balance sheet since FY2006. As at end-June, Wellcall has borrowings of RM13.5 million and net cash of RM25.4 million, down from RM41 million at end-FY2014. The decrease in cash is due, primarily, to its new factory, which is located about 1km from existing factories.  

The additional capacity, which is expected to commence production in July/August, will underpin future growth. Wellcall’s new plant currently includes 7 new mandrel hose production lines and a new spiral hose production line. They are expected to raise monthly production capacity of mandrel hoses from 185,000 linear metre per shift (LMS) to 279,000 LMS of mandrel/spiral hoses. 

In addition, two compounding machines have been installed in the new plant for compound mixing of raw materials, which will enable Wellcall to bring back currently-outsourced compounding works — resulting in costs savings and better control over the quality of materials. There is still room for further expansion in the new plant, which Wellcall is only expected to plan for in the near future.

This article first appeared in digitaledge Daily, on September 1, 2015.