Rubber hose segment to buoy Wellcall growth

PETALING JAYA: Wellcall Holdings Bhd is banking on the resiliency of the industrial rubber hose market to support its earnings growth in the quarters ahead despite weaker economic prospects in its main markets abroad.

Wellcall’s investor relations adviser Shaun Chua said the industrial rubber hose business is driven mainly by replacement demand and as such can be quite resilient during an economic slowdown.

“In order to ensure sustainable growth in the upcoming quarters, Wellcall will be focusing on product quality as well as prompt delivery to ensure customer satisfaction and good pricing power.

“This has been evident in the group’s consistent revenue growth and dividend distribution of cumulatively RM380mil since 2006, greatly supported by recurring customers as a result of the company’s product quality and prompt delivery,” he told StarBiz.

Currently, Wellcall has a healthy order book with income visibility of three to four months. Chua noted the group is capable of minimising customer dependency risks given its wide and diversified clientele portfolio.

“Freight and raw material costs have stabilised since the huge disruption from the Covid-19 pandemic. Wellcall has managed these risks through efficient planning of raw material purchases from suppliers and better inventory management.

“The group’s gross margins have been well supported at a healthy level of between 35% and 40%,” he said

For the second quarter ended March 31, 2023 (2Q23), the industrial rubber hose manufacturer’s revenue increased by 16.7% year-on-year (y-o-y) to RM50.1mil, underpinned by the group’s continuous efforts in capturing the global market share arising from the strengthening global market demand for industrial rubber hose.

The export market contributed to 93% of the group’s total revenue in 2Q23. On the other hand, Wellcall’s net profit rose by 61.6% y-o-y to RM12.8mil or an earnings per share of 2.57 sen in 2Q23.

In a statement, Wellcall stated the overall improvement in revenue was driven by the group’s effort to tap into the global sales growth for the industrial rubber hose market.

“A majority of the group’s sales are driven by export markets and priced in US dollars. Hence, a weaker ringgit is actually beneficial for the group.

“However, some of our costs are denominated in US dollars and the group has a good natural hedging business model in terms of income and costs,” Chua said.

Wellcall’s group managing director, Huang Sha, stated given the growing demand of industrial hoses, the company will be leveraging on its customers’ network and competitive edge to create long term value for all its stakeholders.

“The strong financial result delivered represents our clientele’s continued trust in us despite the unprecedented challenges faced in recent times such as the fluctuating freight and raw material costs.

“Our group has also been working diligently to ensure smoothness across our supply chain within our operations, in order to meet our clients’ orders,” he said in the statement.

In a recent filing with Bursa Malaysia, Wellcall noted it is actively managing its supply chain and material costs and also embarking on cost optimisation exercises to improve operational efficiency.

“The board is optimistic the group will remain resilient and able to sustain its market share and positioning despite the challenges ahead in the global economy, especially with the continuation of gradual increase in the momentum of global demand for industrial rubber hoses,” it said.

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