$WELLCAL / 7231 (WELLCALL HOLDINGS BERHAD)

Investor Updates – 3QFY23

Background
1. Specialize in manufacturing low and medium industrial rubber hose.
2. The largest industrial hose manufacturer in Malaysia with more than 20 years of track record.
3. 90% of sales are from over 70 export countries market.
4. Diversify customers base with over 200 customers.
5. 3 factories in Perak and management team is strong in R&D.
6. Industrial rubber hose is applicable in various industries including air, water, automotive, fuel & oil, F&B, and chemical.
7. The main function of industrial rubber hose is to transfer product from one point to another point.

Key Advantages
1. Orders are Customizable – Based on customers’ required specifications such as diameter, colour, etc.
2. Orders are Flexible – Customer can choose whether order low quantity or high quantity orders from the company.
3. Short Delivery – Fast and efficient as they able to handle up to 2 weeks of urgent orders and within 1 to 2 months, Wellcall will able to ship the product to the customers.
4. Zero-inventory Business Model – Does not have any finished product in its factory
5. R&D Product Innovation & Quality – Constantly improve the product range that they offer to their customers.

Key Updates
1. Higher production volume which led to increasing of revenue as this is driven by better production efficiency, better demand and new recruited production workers.
2. Line expansion in Plant 3 which expected to completed by March 2024.
3. Orderbook is healthy with 2 to 3 months’ sales covered.
4. Lower shipping cost has reduced Wellcall selling & distributing expenses.
5. Wellcall is seeing less logistics disruptions compared to pandemic period.
6. In terms of product prices, at 2Q to 3QFY22, there are few rounds of price adjustments to pass on the higher costs.
7. Since the price is stabilizing now, Wellcall is focus on maintaining price competitiveness and volume growth.
8. Industrial rubber hose market still remaining strong.
9. The Trelleborg JV is on the composite hose market which is different from industrial hose market and this market is very competitive. Thus, Wellcall scaled back the production by only produce when they receive the order.
10. Maintain quarterly dividend payment with 2.20sen in this quarter and the ex-date is 13th September 2023.

Business Highlights
1. Wellcall is actively pursuing expansion efforts in both domestic and international markets.
2. As of 9MFY23, approximately 90% of Wellcall's sales come from exports, while the remaining 10% originate from local sales.
3. The United States and Canada stand out as the top contributors to Wellcall's sales, accounting for 30% of the total, and they experienced a remarkable 34% YoY growth in 9MFY23.
4. Asia represents the second most significant market for Wellcall, contributing 20% of its total sales, and it recorded a substantial 35% YoY growth in 9MFY23.
5. In the overall context of 9MFY23, the export market expanded by 25%, while the local market witnessed a slight decline of 5% YoY.

Financials (3QFY23)
1. Wellcall achieved revenue of RM56.2 million, marking a 19% YoY increase and a 12% QoQ growth, primarily driven by heightened demand for industrial rubber hoses.
2. Wellcall's gross profit also showed significant growth, reaching RM23.6 million, with a YoY increase of 36% and a QoQ rise of 16%.
3. PAT (Profit After Tax) for Wellcall increased to RM17.8 million, reflecting a 65% YoY rise and a 39% QoQ increase. This improvement can be attributed to reduced operating costs, including lower raw material and freight expenses, along with the favorable impact of a strong USD.
4. Wellcall maintains a robust balance sheet, boasting a net cash position of RM69.4 million in 9MFY23 and zero debt, enabling consistent quarterly dividend payments.
5. Wellcall generated a solid cash flow of RM35 million, further supporting its dividend distribution.
6. Over the course of 9 months, Wellcall increased its dividend from 4.4 sen in 9MFY22 to 5.4 sen in 9MFY23, surpassing its dividend payout policy of 50%.

Q&A
1. The notable increase in revenue can be attributed primarily to robust demand within the Oil & Gas (O&G) industry, which accounts for 50% to 60% of the total revenue.
2. Wellcall's revenue predominantly arises from replacement demand, comprising approximately 90% to 95% of total sales, while the remainder stems from new customers. Regarding the order book, there isn't much deviation from the typical orders placed by existing customers, except for potential increases in order volume or quantity.
3. Despite the growth in the Electric Vehicle (EV) sector, the automotive market contribution to Wellcall's revenue remains relatively modest.
4. Wellcall occasionally offers minor price discounts to customers when raw material prices are in a downturn. However, this has minimal impact on the company due to its ability to provide prompt deliveries and consistent high-quality products.
5. The expansion of the production line in Plant 3 aims to enhance the company's efficiency, productivity, and output. This advanced line requires minimal labor, typically involving only 1 to 2 workers, and features computerization to reduce manual labor. Consequently, this leads to reduced reject rates and improved hose quality during production.
6. Currently, Wellcall enjoys a 2 to 3 months' visibility into its order book, instilling confidence in the company's future growth prospects within the rubber hose market.