$WELLCAL / 7231 (WELLCALL HOLDINGS BERHAD) - Short term impact from Red Sea Disruptions; Continues to be a Cash Generating Machine

Wellcall has come a long way since I've been covering them back in 2021. They have continued to perform well and have been giving out lots of dividends to their investors. This low-profile company has RoE of close to 40%, far knocking the ball out of the park compared to many of the other hotly discussed companies. Let's just take a look at some of my brief notes from the latest QR.

Key notes from the latest QR briefing
1. Revenue flattish due to decline in export sales but growth in local sales.
2. Lower raw mat costs + better cost management => Increasing margins
3. Still a money printing machine with strong FCF (which is higher than profits).
4. Expansion of new lines in Plant 3 almost completed, pending some approvals. Target commissioning around Q3 of this year. The new plant has new and modern machines which will improve efficiencies and improve capacity by roughly 20%.
5. Raw Material prices have been rising since end 2023. Wellcall will continue to adjust ASP as necessary.
6. Red Sea disruptions continue to impact them but seeing improvements towards end Feb.
7. Replacement cycle remains strong, with about 90% of orders coming from replacements.
8. Maintenance CAPEX roughly RM 3m a year.
9. Wellcall receives payment upfront before buying raw mat, natural hedging.
10. O&G picking up, seeing new orders and customers in this industry.
11. Any product that can replace rubber hose? So far, none that can.

The recovery of the economies and uptick in industrial production also means more demand for their industrial rubber hoses. I've been following the Red Sea disruptions for a while, and have been paying close watch to companies exporting to Europe and Americas. Things seem to be stabilising, which should bode well for exporters like Wellcall in the coming months (but not necessarily in the upcoming QR!).