AnalysisBursa

7 things I learned from the 2020 Wellcall AGM and EGM

Founded in 1996, Wellcall Holdings Malaysia manufactures and sells mandrel and extrusion hoses to more than 70 countries worldwide. The company was subsequently listed on Bursa Malaysia in 2006. Ninety percent of its hoses are exported while the rest are for domestic use. Its industrial hoses are applied across different industries ranging from welding, oil and gas, to air and water.

Wellcall’s share price was not spared from the recent market sell-down and had fallen to as low as RM0.55 per share in March this year. I attended Wellcall’s recent AGM and EGM as I was curious to know how the company intends to grow during this COVID-19 crisis.

Here are seven things I learned from the 2020 Wellcall AGM and EGM:

1. Wellcall’s revenue decreased by 0.6% year-on-year to RM170.1 million because of the overall soft industrial hose market. It posted a 18.5% increase year-on-year in its net profit (excluding exceptional items) over the same period due to effective cost management and increased productivity.

2. Director Huang Kai Lin shared that up to one-fifth of Wellcall’s revenue may be affected by the pandemic. In its 1H 2020 quarterly results, revenue and net profit excluding one-off items decreased by 18.1% and 11.3% respectively. In Huang’s opinion, global businesses are affected by COVID-19 including Wellcall’s, except for the medical, digital, technology, and e-commerce industries.

The company saw a slower pace of growth in several areas. He believes the demand for industrial hoses will pick up once the industries go back to normal, particularly the transportation sector. Wellcall will continue to expand its customer base to offset losses due to reduced demand.

3. Wellcall’s third plant has been operating since FY2018 and is equipped with eight production lines that are capable of compounding rubber work — that was previously outsourced — to improve quality management. It has improved its production efficiency by reducing the number of employees needed per production line from 10 to 8 on average in 2019. Revenue per employee also improved by about 5% year-on-year.

4. Huang cautioned shareholders that the demand for composite hoses has softened amidst COVID-19. The pandemic has also caused business disruptions to its joint venture (JV) with Trelleborg Holding AB. The newly rented JV factory has started producing composite hoses and is currently being expanded to accommodate an additional production line that was initially targeted to be added by August 2020.

As Malaysia’s borders remained closed to foreigners during the Movement Control Order, the company’s European technical team could not enter the country as planned. The factory will resume its full operations two to three months only after the travel restrictions have been lifted.

Huang addressed one of the pre-submitted questions that the JV leverages on the partner’s technology and experience to distribute and market composite hoses in the Asian markets identified by Wellcall.

5. In 2019, Wellcall spent about RM1.7 million (about 1% of its revenue) on research and development. The research and development work is led by its managing director and four other personnel who have academic or job exposure to rubber-related industries.

6. Financial controller Gary Yu responded to Minority Shareholder Watch Group that the company keeps three to four months of main raw materials as inventory. Further, RM7.3 million was placed in a principal-guaranteed cash management fund with an interest rate of about 0.7%.

7. During the EGM, a shareholder enquired about the rationale of engaging in a related-party transaction with Global Rubber Industry (M) Sdn Bhd that was previously non-existent. Yu added that the move is to diversify Wellcall’s supplier concentration risk and enhance productivity and efficiency. The annual transactions are expected to amount to RM1.0 million, which is insignificant compared to Wellcall’s cost of sales of RM108.2 million in 2019.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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