Wellcall Holdings Bhd
(April 12, RM1.38)
Outperform at RM1.29, target price raised to RM1.76: From our recent visit, we gathered that prospects in the medium term are bullish. Orders are coming in strong, prompting us to up our FY10 to FY12 earnings per share (EPS) forecasts by 2% to 5%.
Gross dividend per share (DPS) forecasts for FY10 to FY12 are also raised 40% on expectations of a higher dividend payout. As a result of our earnings upgrade and a rise in our target price earnings (PE) for Top Glove from 15 times to 16.5 times, our target price goes up from RM1.61 to RM1.76, still based on a 30% discount to our target PE for Top Glove. We continue to rate Wellcall an outperform as the stronger-than-expected demand recovery and potential capacity expansion could catalyse a rerating.
The share price is supported by generous net 8% to 9% dividend yields and a net cash of 30 sen/share (24% of the current share price).
Wellcall has seen a strong recovery in demand over the past few months, mainly from the Middle East, South America and Asia. Although it is running on two shifts, its order backlog now stretches to three months because of some production bottlenecks. The bottlenecks arose mainly due to labour shortage, which it recently partially addressed by bringing in new foreign workers.
Since 3QFY10 (April-June 2009), Wellcall's Ebitda (earnings before interest, tax, depreciation and amortisation) margin has recovered to the 25% level, indicating its ability to pass on rising raw material costs to its customers.
As its pioneer status will expire in mid-2010, we have raised our effective tax rate assumptions for FY11 to FY12 from 9% to 24%, closer to the corporate tax rate. However, in view of Wellcall's demonstrated ability to pass on rising raw material costs to its customers, we have raised our FY10 to FY12 Ebitda margins by three percentage points to 25%. Our FY11 to FY12 revenue forecasts have also been revised upwards by 4% to 5% to reflect better demand growth prospects.
We are raising our FY10 to FY12 net dividend payout ratio from 60% to 80%, which increases our gross DPS forecasts by 40%. DPS could even be higher. Assuming a 100% payout of our FY10 forecast net profit, net DPS would be 13.7 sen. - CIMB Research, April 12
This article appeared in The Edge Financial Daily, April 13, 2010.
(April 12, RM1.38)
Outperform at RM1.29, target price raised to RM1.76: From our recent visit, we gathered that prospects in the medium term are bullish. Orders are coming in strong, prompting us to up our FY10 to FY12 earnings per share (EPS) forecasts by 2% to 5%.
Gross dividend per share (DPS) forecasts for FY10 to FY12 are also raised 40% on expectations of a higher dividend payout. As a result of our earnings upgrade and a rise in our target price earnings (PE) for Top Glove from 15 times to 16.5 times, our target price goes up from RM1.61 to RM1.76, still based on a 30% discount to our target PE for Top Glove. We continue to rate Wellcall an outperform as the stronger-than-expected demand recovery and potential capacity expansion could catalyse a rerating.
The share price is supported by generous net 8% to 9% dividend yields and a net cash of 30 sen/share (24% of the current share price).
Wellcall has seen a strong recovery in demand over the past few months, mainly from the Middle East, South America and Asia. Although it is running on two shifts, its order backlog now stretches to three months because of some production bottlenecks. The bottlenecks arose mainly due to labour shortage, which it recently partially addressed by bringing in new foreign workers.
Since 3QFY10 (April-June 2009), Wellcall's Ebitda (earnings before interest, tax, depreciation and amortisation) margin has recovered to the 25% level, indicating its ability to pass on rising raw material costs to its customers.
As its pioneer status will expire in mid-2010, we have raised our effective tax rate assumptions for FY11 to FY12 from 9% to 24%, closer to the corporate tax rate. However, in view of Wellcall's demonstrated ability to pass on rising raw material costs to its customers, we have raised our FY10 to FY12 Ebitda margins by three percentage points to 25%. Our FY11 to FY12 revenue forecasts have also been revised upwards by 4% to 5% to reflect better demand growth prospects.
We are raising our FY10 to FY12 net dividend payout ratio from 60% to 80%, which increases our gross DPS forecasts by 40%. DPS could even be higher. Assuming a 100% payout of our FY10 forecast net profit, net DPS would be 13.7 sen. - CIMB Research, April 12
This article appeared in The Edge Financial Daily, April 13, 2010.
