Hot Stock Wellcall rises 6% on upgrades, dividend

by **Cals** Tue 26 Nov 2013, 16:19

Hot Stock Wellcall rises 6% on upgrades, dividend

Business & Markets 2013

Written by Jeffrey Tan of theedgemalaysia.com

Tuesday, 26 November 2013 12:24

KUALA LUMPUR (Nov 26): Wellcall Holdings Bhd rose 6% after analysts raised their earnings forecast for the industrial hose manufacturer, and upgraded their target price (TP) for the stock.

Wellcall's interim dividend per share (DPS) of five sen for the fourth quarter ended September 30, 2013 (4QFY13) had also supported Wellcall's share price.

At 11.47am , Wellcall rose 21 sen or 6% to RM3.50. The second-largest gainer saw some 247,000 shares exchanging hands.

“We cut our FY14 earnings per share (EPS), raise our FY15 EPS and introduce FY16 numbers,” CIMB Investment Bank analyst Nigel Foo said in a note.

Foo said Wellcall remains an "outperform". But CIMB has raised its TP for the stock to RM3.72 from RM3.10.

Foo said the DPS of five sen was above its expectation. Year to date, an 18 sen DPS have been declared, putting the dividend payout ratio at 96%.

He said further demand recovery and attractive dividend yields of 5% to 6% could catalyse the stock.

To sustain the 90% to 100% dividend payout ratio, Wellcall is likely to take on some short-term borrowings, according to the analyst.

He however noted that the firm’s balance sheet is strong with its RM46 million net cash or 35 sen per share as at end September.

CIMB's note was issued following the announcement of Wellcall's financials.

Foo said Wellcall's FY13 net profit came in at 101% of CIMB's forecast. This is in line with market and CIMB's expectations.

“Wellcall generally benefits from declining selling prices as it is able to reduce selling prices at a slower pace when raw material prices fall,” Foo said.

Meanwhile, Foo said the land acquisition for Wellcall’s new factory was completed this month. Once the expansion is completed by next year end, it will raise Wellcall's annual mandrel hose production capacity by 50% to around 38,000 tonnes, he said.