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Riding On The “Cheers” Brand
Corporate Digest | 15 August 2008
By: Xavier Lim
Articles (51) Profile

Regional markets have continued to fall on the back of the global economic slowdown and ongoing credit woes, which show no signs of abating even after a year. While many companies are struggling to maintain their profits during these bad times, Mainboard-listed Man Wah Holdings (Man Wah) has continued its steady growth in 1Q09.

Established in 1992, Man Wah is a home furnishing group, primarily engaged in the design, manufacture and sale of a broad range of mid to high-end motion sofas under its well-known “Cheers” brand. Armed with a production capacity of 500,000 sofa sets per annum, the company derives bulk of its revenue from North America, Europe and PRC.

Although these three major economies have been hit by the credit crunch, they are still growing albeit at a slower rate. In 2007, US and Europe produced US$13.86 trillion and US$14.4 trillion in goods and services respectively. Together, they accounted for over 40% of the world’s gross domestic product (GDP), which amounted to US$65.82 trillion. PRC’s GDP stood at US$7 trillion.

Despite the weak US housing market, Man Wah said that it has not seen any slowdown in orders from the US. On the contrary, the company has been expanding its market share at the expense of its competitors.


Man Wah’s 1Q09 earnings increased 65.3% on the back of improved sales in North America and PRC, while in Europe, the company witnessed a 23.6% contraction in sales. According to the management, Man Wah is currently working to counter the slowing European market by securing relationships with large retailers.

For 1Q09, its North American market segment registered the strongest revenue growth of 104.6%, while its PRC and Hong Kong markets grew by 47.8% and 15.6% respectively. Notably, Man Wah’s turnover from North America grew at a compounded annual growth rate (CAGR) of 77.8% from FY05’s HK$113.6m to FY08’s HK$639m, while its PRC turnover grew at a CAGR of 141.4% from FY05’s HK$19.7m to FY08’s HK$277.2m.

Another aspect worth taking note is Man Wah’s gross profit margin, which has improved tremendously from 25.5% in 2H07 to 34.9% in 1Q09 despite sharp hikes in commodity prices, including its key raw material leather. Man Wah has been proactively introducing measures such as product mix adjustment, direct sales to large US retailers instead of via intermediary distributors, and streamlining of its operations to achieve greater economies of scale. These strategies have definitely placed the company on the right track.

From FY04 to FY08, Man Wah’s revenue grew at a CAGR of 59% from HK$233m to HK$1.486b, while its net profit grew at a CAGR of 39% from HK$50m to HK$188m. Coupled with a strong ROE of 31.2%, generous dividend yield of 7.5%, and undemanding valuation of 4.9x FY08 P/E ratio, it would certainly be difficult for investors not to keep this promising company under their radar.

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

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