Why is Wellcall Holdings Berhad A Favourite Among Value Investors?
February 21, 2020
Wellcall Holdings Berhad (KLSE: WELLCAL) is the largest industrial rubber hose manufacture in Malaysia. As at 17 January 2020, the Group has a market capitalisation of approximately RM537.8 million. In this article, we will take a closer look at the business, management and financial aspects of the Group, to see if it is worth an investment.
history dates back to the mid-1990s when its Managing Director, Mr. Huang Sha,
established Wellcall Hose (M) Sdn Bhd (“WHSB”) together with two other
founders, Mr. Leong Hon Chong and Mr. Lin Kun Pao, to engage in the business of
manufacturing rubber hose for customers who are mainly in the business of
distributing rubber hose to original equipment manufacturers (“OEM”). WHSB was
then principally involved in the manufacture and sale of air and water hose,
oil hose and welding hose, and focused its marketing efforts in Europe, USA and
Wellcall has grown into a manufacturer of rubber hoses for six major
application markets including air and water, welding and gas, oil and fuel,
automobile, ship building, and food and beverage. Owing to its research and
development initiatives, the Group is able to manufacture a wide range of high
quality rubber hoses through the mandrel or extruded process.
now has a global presence and can count customers from Malaysia, the Middle
East, Europe, USA/ Canada, Australia / New Zealand, Asia, South America and
Africa. The chart below shows the composition of Wellcall’s revenue from
external customers for financial year (“FY”) 2014 to FY2018.
2019, Wellcall entered a joint venture agreement with Trelleborg AB, a Swedish
polymer engineering solutions provider, to set up Trelleborg Wellcall Sdn Bhd
to manufacture and sell composite hoses and fittings.
hoses are different from Wellcall’s existing rubber-based hoses as composite
hoses contain multiple layers of plastics. These hoses are mainly used to
transfer petroleum and chemical productions during the ship-to-shore and
AB will own 51% of the said joint venture, and Wellcall the remaining 49%. The
partnership is a milestone for Wellcall as it ventures into a new business segment.
Wellcall will benefit from the technology and knowledge transfer, and will fund
its stake in the joint venture through internally-generated funds.
key management are as follows:
Sha (63, Taiwanese, Malaysian Permanent Resident)
Group Non-Independent Managing Director
Co-founder of WHSB.Appointed to the Board of Wellcall on 17 April 2006 and was appointed
as Managing Director at the same date.Over 40 years of experience
in the manufacturing of rubber houses and is currently responsible for the
strategic planning and development of the Group. Owns 3.40% direct interest and 0.15% indirect interest in the Group.
Hon Chong (73, Malaysian)
Non-Independent Executive Director
Graduated from the University
of Otago in New Zealand with a Bachelor of Commerce (Accountancy) in 1970.Co-founder of WHSB. Responsible for the administration and marketing functions of the
Group. Owns 1.08% direct interest in the Group.
Daughter of Huang Sha and
sister of Huang Kai Lin.Graduated from Stamford College, Malaysia with a Diploma in Accounting
in 1999. Upon graduation, she joined WHSB as a
Marketing Executive assisting in sales and marketing functions and later
promoted to Assistant Marketing Manager, and later on Business Development
Manager. She was appointed to the
Board of Wellcall on 23 May 2018. Her current position is Manager to the
Group Managing Director office.Owns 0.11% direct interest in
Lin (34, Taiwanese, Malaysian Permanent Resident)
Alternate Director to Leong Hon Chong
Son of Huang Sha and brother of
Huang Yu Fen.Graduated from National Taiwan University, Taiwan with a Bachelor of
Chemical Engineering in 2008. He has several years of
working experience in the rubber product industry and later joined as an
engineer, in the research and development department of WHSB and later
promoted as General Manager overseeing the operations of Group. Appointed to the Board of
Wellcall on 12 April 2010. Owns 0.44% indirect interest
Kang Seng (51, Malaysian)
Non-Independent Non-Executive Director
Appointed to the Board of Wellcall on 17 April 2006. He is also a
Non-Executive Director of WHSB.Mr. Tan has wide ranging
interests in property, hospitality and financial technology business in
Malaysia and overseas. He is also an active investor in food and beverages
industries. Owns 0.34% direct interest
and 11.03% indirect interest in the Group.
All the above-mentioned
directors have vested interest in the Group and are likely to be motivated to
ensure the business’ continued success. Interestingly, the cumulative interest
of Wellcall’s founders (Mr. Huang Sha and Mr. Leong Hong Chong) as well as Mr.
Huang Sha’s children is less than Mr. Tan Kang Seng’s (a Non-Executive
director) stake in the Group.
extracted the following list of top 20 shareholders from the Wellcall’s 2018
annual report (as at 21 December 2018). Note that the Group’s 2019 annual
report has not been published, so a more current listing is not yet available.
the top 20 shareholders own 59.60% of Wellcall’s shares. The presence of a
number of institutional funds as shareholders provides a likely indicator that the
Group is a generous dividend payer.
Measure 1: Growth in revenue and profits
The Group has
seen low growth in revenue of 3.05% and profit after tax of 4.52% over the past
6 years. We understand from the annual reports that management is seeing
softening of demand resulted from slower recovery of global demand for
industrial rubber hose.
Measure 2: Profitability
decent gross margins, net profit margins and return on equity ratios. While
there is no clear evidence of pricing power for its products, at the very least
management is competent in managing costs and resource allocation.
Measure 3: Liquidity
has a conservatively managed balance sheet as it has recorded favourable
current, cash and net gearing ratios for the past 6 years. In fact, the Group has
cash and cash equivalents of approximately RM52.8m as at 30 September 2019 and
Round 4: Dividends payout
has been consistently paying out dividends every year, well in excess of its
dividend policy to allocate at least of 50% of profits as dividends. Due to its
generous dividend payout, many investors view the Group as an “income stock”.
The Group does
not require high capital expenditure to operate and maintain its business and
generates ample of free cash flow each year. In view of this, the
sustainability of such high dividend payouts should not be a concern.
closing share price of RM1.08 as at 17 January 2020, Wellcall is trading at a
price of earnings (PE) ratio of 14.61, with an indicative yield of 5.23%. While
growth prospects for the Group are not forthcoming, investors can seek comfort from
the steady dividend distributions.
An accountant by training, F.I.R.E 2030 is a student of value investing since 2012. She believes that successful investing requires discipline and patience. But with the right knowledge and temperament, ordinary investors can achieve extraordinary results. These articles are her journals on stocks and the investing journey toward financial freedom in 2030.