PETALING JAYA: Analysts remain confident about industrial-hose maker Wellcall Holdings Bhd
’s prospects underpinned by strong demand in the America, Canada, the Middle East and African markets.
BIMB Research said the optimism is further supported by the groups’ strong position in the industrial rubber hose market as well as its focus on volume growth via a high-mix order strategy, which is expected to sustain demand for its product range.
For the first quarter of its financial year 2025 ending Sept 30 (1Q25), the group posted a slight drop in net profit to RM13.29mil from RM13.67mil in the same quarter of the previous year .
Its revenue also declined during the quarter by 7.19% year-on-year to RM48.67mil from RM52.44mil in the previous year.
According to BIMB Research, the decline in revenue was primarily due to a slowdown in demand particularly in Asia, Europe, Australia and New Zealand, as well as local markets.
The group has adopted a cautious outlook in terms of demand on concerns over the slowdown as customers minimised inventory amid uncertainty in the current global economic environment.
However, Wellcall expects order recovery in the intermediate term supported by a rebound in economic activity across multiple regions as it targets a recovery in the second half of this year.
Meanwhile, the African region saw a tremendous jump of 65.3% in export sales in 1Q25, as the region saw the opening of more industries that require higher usage of industrial rubber hoses.
“We understand Wellcall is willing to offer slight price reductions to certain African countries. We believe this strategy aligns with Wellcall’s efforts to sustain sales momentum, enhance competitiveness and adapt to market dynamics in the African region.
“This particularly helps to offset softer demand in other regions,” BIMB Research said.
South Africa and Ghana were noted to present significant growth potential for increased sales orders for the group.
The US and Canada markets saw an increase in revenue contribution by 20.46% to RM18.43mil for the quarter, while the Middle East saw an increase of 29% to RM4.24mil.
In 2023, Wellcall had announced the commencement of an expansion plan with procurement of an advanced mandrel line machine from Italy for one of its plants.
The machinery, which has already arrived and was installed last April allowed the plant to feature a much higher level of automation, said BIMB Research.
The research house said Wellcall would benefit from enhanced automation and streamlined production processes via its investments in advanced equipment.
“This is expected to reduce bottlenecks and labour costs while strengthening quality control.
“With increased capacity and operational flexibility, the company will be well-positioned to respond swiftly to market dynamics and customer demand, giving it an edge over its competitors,” the research house said.
Additionally, Wellcall’s recent acquisition of an 18-acre site located near its existing plant is expected to not be developed into a new plant in the short to medium term.
BIMB Research said the group is still in the process of finalising its plans and a key considerations for the development of the new site includes the availability of foreign workers, as the government pushes for a higher reliance on local labour.
The research house maintained its forecasts for Wellcal and its “buy” call on the stock with a target price of RM1.87.
