Wellcall Research Trip

Dear Fellow Investor,

Wellcall Research Trip

On Thursday, 24 October, we visited Wellcall, the largest Malaysian producer of rubber hoses. On my left is Leong Hon Chong the Executive Director and on my right Pong Teng Siew , research head of Interpac Securities as well as other company officers. 

               From Dynaquest Research

Founded in 1998, today, Wellcall, based in Ipoh is a global and the largest industry rubber hose manufacturer in Malaysia with a workforce of 350 staff. It has its our own in-house Research And Development Division (R&D) which is able to develop customized products. WellCall has expanded its existing factory space from 150,000 sq. ft to 320,000 sq. ft, encompassing a total land area of approximately 504,570 sq. ft.

Among the products manufactured by Wellcall are protective cover hose, multi-purpose hose, air hose, water hose, car heater hose, fuel hose , food delivery hose, fire reel hose, general wash down hose, low pressure oil hose, twin-line welding hose, radiator hose, low pressure textile braided hose, oil discharge hose, sand blast hose and petroleum oil hose. Wellcall manufactures and sells rubber hose for 6 application markets such as Air & Water, Welding & Gas, Oil & Fuel, Automobile, Ship Building, and Food & Beverages.

Wellcall can produce the extruded type of hoses from the smallest bore size of 3/16” to the largest of 2”. While the large bore size of mandrel hose (nylon wrappings) type can be produced under the range of 1/2” to 8”. In addition, Wellcall is undertaking R&D activities to develop the bore size of 24” mandrel hose and to produce a higher temperature resistant product. The Group sells its products to customers in over 60 countries.

For 9M19, Wellcall exported 90.9% of its rubber hose to USA/Canada (34.1%), Europe (18.1%), Asia (16.9%), Australia/New Zealand (11.2%), South America (8.5%), Middle East (8.3%) and Africa (2.9%). Finally, Wellcall has a strong balance sheet with not only zero borrowing but has cash in hand of RM46.916m or 9.42 sen per share as at 30.6.19. Cash flow is healthy due to the recurring revenues of the hose replacement cycle.  Dividend is now 5.8 % and well covered.

Their investment moat is their world wide distributer network  with their ability to customize customer needs meaning they can do relatively small orders that are not cost efficient for large multinational companies to handle.

Wellcall has been under pressure and is trading at a multiyear support due to the global slowdown, trade war, negative market sentiment and weakness in oil prices.

Should oil stabilize at these current levels and Trump be re elected in 2020 expect this share to recover to old highs. 34.1 % of their revenues are from the US and Trump is friendly to the oil industry.

Our positions in Hong Kong including Link Reit, Hong Kong Land and the EWH have suffered due to the Hong Kong unrest. These are all quality companies and once The Hang Seng  stabilizes and the rioters lose popular support our shares should go back up. Most Hong Kong citizens want to get back to work so these positive things are happening.  There is less focus on Hong Kong by the Western media including BBC and CNN which is a good sign.

From Bloomberg research, on the home front professional short sellers of KLSE shares are covering their short sales. A short seller has unlimited risk and must pay interest and dividends on the shares they short. If shares go up the short sellers will die. This is what is happening to the short sellers of gold. Major banks such as JP Morgan, and hedge funds have lost multi billion USD on their gold shorts in their efforts to suppress  gold prices as gold has risen over 30 % this year. Rising gold prices are a vote of no confidence in governments so governments through the large banks will do all they can to push gold down. They will succeed in the short term because the Federal Reserve can print money to buy short futures contracts and push gold down but ultimately they can not repeal the laws of supply and demand just like the Federal Reserve can not repeal the law of gravity.

Invest well and grow your wealth

Bill

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