Wednesday 11 September 2013

Wellcall expands to meet American demand

The soon-to-be-finalised expansion plans for Wellcall Holdings Bhd - Malaysia's largest industrial rubber hose exporter - driven by demand from new clients in the Americas, will increase its production capacity by 70%

The expansion is to cater for clients that need bulk orders, which might incur high logistic costs. 70% of the additional capacity is for new clients from North and South America and the rest is for existing customers.

Wellcall's products are targeted at the mining, oil and gas, transport, food and beverage and shipping sectors.

"We have already penetrated the Americas, but after a 3-week marketing trip to the US, we realised that we had to approach the market differently. We had to do mass orders to meet its needs"

In FY12 ended Sept 30, the US accounted for RM30.2mof total sales or 15.63%, almost double FY11's RM18.4m

South America contributed RM16.9m to sales last year, up 19.64% from the previous year.

Wellcall is now awaiting approval from relevant state agencies to acquire 8.63acres of 99-year leasehold land in Ipoh, Perak, which should be given in the coming months.

Half an acre of the land was reclaimed from a lake, which is for future contigencies.

Wellcall's new factory is expected to be set up by mid-2014 and will be built in 2 stages. Once the stages are completed, the factory will increase the company's production capacity by 60% - 70%

"We will build the basic infrastructure for starters. Then, once stage 1 is completed, it will increase our capacity by at least 40% to 46000 tonnes from 33000 tonnes now. Once we secure more contracts, we will proceed with stage 2, which will add another 20% to 30% or 10,000 tonnes to capacity, but only after stage 1 reaches maximum capacity. We only expand every 4 to 5 years"

The new facility will house sophisticated and high-tech machinery that will focus solely on rubber hoses made using mandrels.

Hose mandrels are long, high specification rods around which reinforced industrial rubber hoses are formed. Mandrels are used in producing hoses that are more than 2 inches but less than 2ft in diameter and with a maximum length of 60m.

Natural rubber makes up 70% of Wellcall's production cost. Price of standard Malaysian rubber have fallen 52% from their peakin 2011 to RM8.10 per kg now.

Demand for mandrel hoses remains intact, growing at 4% to 5% per annum, especially from markets like Europe and the US.

In Asia Pacific, not many have this type of technology or expertise, which gives Wellcall a competitive edge as its products are in a niche market. Moreover, the company does not stock its products as its clients have specific needs and specifications for the hoses they buy.

The global market for tubing and rubber hoses in 2004 was worth about US$4.4b, of which Wellcall had a 0.8% share.

Moving forward, the company intends to sell its unique blend of compounding material to its existing clients, which will be another source of income for it. More clients in Asia-Pacific are turning to Wellcall for compounding material as China is no longer a reliable source for it in terms of quality.

Wellcall exports 93% of its products to 65 countries with Malaysia accounting for only 8% of total sales.

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