Man Wah - A multi-bagger in the making?

while fund managers may accumulate more in future, for now the market is numbed to good news. man wah is flat at 24 cents and 87,000 shares traded as at mid afternoon Monday.

OCBC Research Report: Mon, 11 Aug 2008 Man Wah Holdings Ltd (MWH) continued to grow steadily in 1Q09, with net profit climbing 65.3% to HK$62.6m on the back of a 40.7% growth in revenue to HK$474.9m. The group’s strong performance was backed by growth across all markets other than Europe. In particular, its North American segment defied the weak housing market by posting a strong 104.6% YoY growth in sales. Profit margins improved at both gross and net levels. We expect MWH’s recently completed capacity enlargement and ongoing retail expansion to continue to propel its sales. Maintain BUY with S$0.51 fair value estimate. Robust growth in 1Q09. Man Wah Holdings Ltd (MWH) continued its steady growth in 1Q09. Net profit climbed 65.3% to HK$62.6m on the back of a 40.7% growth in revenue to HK$474.9m, meeting 24% of our topline and 27% of our bottomline estimates, respectively. The group’s stronger sales performance was backed by growth across most segments, except for Europe. Its North America segment impressed with the strongest growth of 104.6% YoY to HK$261.7m, while the PRC and Hong Kong segments grew by 47.8% and 15.6%, respectively. The only blemish in MWH’s results was the 23.6% contraction in its Europe sales, and the group is working to counter the slowing European market by securing relationships with large retailers. Profit margins growing. Gross profit margin swelled by 9.1ppt YoY to 34.9%, while net profit margin expanded 2ppt to 13.2%. The encouraging improvement in MWH’s gross profit margin was attributed to a host of favorable factors including stabilizing leather prices and successful ASP revisions. We expect its recently expanded production capacity to boost operating efficiency with better economies of scale, and this should translate to a healthier net profit margin for FY09. However, we remain cautious with our margin expectations as persistent inflationary pressure could potentially offset savings from enhanced efficiencies. Capacity and retail expansions to propel sales growth. MWH’s growth strategy remains intact, driven by its recently completed capacity enlargement and ongoing retail expansion. The group has more than tripled its production capacity recently, and is on track to meet its targeted 60% utilization rate by FY09, implying that our 32% revenue growth projection is within reach. As for its retail penetration, MWH has widened its presence by opening 17 new stores in 1Q09, bringing its store count to 230. Management maintains its target of 300 stores by FY09. Its expanding retail network, coupled with organic growth from improved sales per store, will propel the group’s sales. Still a compelling BUY. Despite the weak US housing market, MWH has not seen any slowdown in orders from the US. On the contrary, it has been expanding its market share at the expense of its competitors. We continue to like MWH for its strong ROE of 31.2%, generous dividend yield of 5.4%, and undemanding valuation of 3.8x current year PER. We maintain our BUY rating and S$0.51 fair value estimate on the stock.

I asked Management to clarify Executive Director Li Jianhong\'s holding as there seems to be a discrepancy in the 2008 annual report (page 38 vs page 92). His direct holding decreased from 8 mil on 31 Mar to 4 mil on 13 Jun, and no SGX announcements were made regarding this. Today I\'ve got a reassuring reply from CFO Francis Lee: Hi Your analysis of Li Jianhong\'s shareholdings is not wrong and neither is the annual report. His holdings as at 31 March 2008 under page 38 of the AR was a total of 9 million shares of which 8 million held in his own name and the other 1 million held under nominees. As in June, that status changed. He has only 4 million registered in his own name while the balance of 5 million under nominees. Page 92 of the AR is correct. There is no sale by him and his total shareholdings still remains at 9 million. Francis Lee Finance Director Man Wah Holdings Ltd

14 Aug 08 - INTERVIEW-Sofa maker Man Wah expands amid strong exports, China sales (XFN-ASIA) - Despite weakness in some overseas markets, leather sofa maker Man Wah Holdings Ltd is expecting strong sales as it pushes ahead with an aggressive expansion plan. The Singapore-listed company said over the weekend that its net profit for its first fiscal quarter rose 65.3 pct year-on-year to 62.6 mln hkd on revenue growth of 40.7 pct to 474.9 mln. Sales to the US grew 104.6 pct year-on-year to 261.7 mln hkd, while sales in China were up 47.8 pct at 74.5 mln for the three months to the nd of June. The Hong Kong-based company, which has its production in south China\'s Guangdong province, said its robust profit growth and solid sales were aided by enhanced output as well as better margins for sales to the US, its top market. \"We were not surprised by our results. We had good orders coming from the US, and domestic sales from China. The only thing - sales coming from the European market are softer,\" said CFO Francis Lee. In an interview with XFN-Asia, he said that the company attributed most of its recent strong performance to capacity increases. \"We are very much capacity-driven, so we believe that the execution of Phase II of our expansion plan will give us a boost as far as driving up sales for the coming years, because without capacity, we can\'t meet market demand. So that is very much a reason for the quarterly expansion that we just had.\" The company has three leather sofa production plants and one foam factory, employing about 1,500 people. With the completion of its Phase II plant in the Huizhou Daya Bay industrial zone in December 2007, annual production capacity nearly tripled to 500,000 sofa sets to meet the growing demand. \"So the capacity increase in our plants is the major component in giving us good growth, as well as hopefully for the next quarter and the next one to two years,\" Lee added. But spring boarding growth by expanding facilities had its limitations, and the firm is also keeping its eyes open for attractive acquisition targets. \"There are some limits to just focusing on organic growth. We are constantly looking at opportunities for good M&As. We believe that we have good brand recognition, so we may buy another brand or two. In China, we can extend our network and business in the market faster.\" Man Wah is also trying to cut out the middle man in its furniture set sales to the US. \"In the US, now we mostly sell directly to top 100 furniture retailers rather than to wholesalers. We now sell more to retailers in the US who have their own stores. So we have better negotiating positions with them with no middle men compared with wholesalers whose motivation is all about getting the lowest prices for products.\" He said this is helping its margins. \"It\'s easier for us to raise prices, because if you raise prices for wholesalers, they will probably go elsewhere. For the retailers who sell our products in their many stores, they will likely stay with us knowing the relationship that we have established, and that is a strong point as far as price negotiations are concerned.\" He said that Man Wah is still bucking the trend and boosting sales to the US during an economic slowdown, and suggested the company still has room for growth. \"It\'s a huge market and our market share in the US is only about 0.2 pct. And although there is a general slowdown in the US economy, we are still getting brisk sales from our buyers, who are generally big, and some are weathering nicely against the slowdown.\" Leather and foam, two major components of its sofas, have both seen price hikes. Man Wah buys its leather from Italy, South America and China. For the most part, however, it has been able to pass along the costs, at least in the US. \"Leather prices saw a big spike in 2006 but have tapered off since then and stabilized, only inching up slightly recently. Also, rising oil prices have had inflationary pressure on foam prices, which comprise about 18 pct of the cost of our leather sofas,\" Lee said. \"Costs have gone up, but generally we have been able to move our prices too.\" Despite its heavy reliance on the US market, the company is also keenly interested in the big market on its doorstep. It plans to have 300 \"Cheers\" sofa set retailing outlets in China by early next year. It now has a network of 230 Cheers specialty stores selling its products. \"We are cautiously optimistic going forward. Short term, we are more upbeat on US exports than we are to the EU,\" he said. \"We also still believe the Chinese consumption story is valid. For the next few years, we believe the growth in China will help us grow overall, and grow our domestic dominance,\" Lee said.

In response to some questions in other forums regarding my comments on Man Wah\'s US team, I post below their appointment press releases: Barr heads China leather maker\'s U.S. arm Anticipate significant increases Joan Gunin -- Furniture Today, 3/24/2006 11:35:00 AM HIGH POINT - Stephen Barr has been named president of China-based leather upholstery maker Man Wah Holdings\' North America division, to be known as Cheers Sofa USA. He was president of HTL International USA, an arm of another Chinese-based leather producer. In his new post, Barr reports to John Li, managing director of Man Wah Holdings, the 13-year-old publicly traded producer based in Shenzhen, China. Both J.B. Ricci and Jon Lannartone continue in sales for Man Wah. Formerly trading as Fiamma Leather in the United States, the company will revert to its European brand name, Cheers, with the U.S. sales and marketing arm called Cheers Sofa USA. Man Wah also sells its line in the United Kingdom, Europe, Asia and Australia. The line focuses on motion, but a complementary line of stationary sofas and club chairs is in development. In anticipation of significant increases in its U.S. business, Man Wah is supplementing its 1 million-square-foot factory in Shenzhen with a 2.5 million-square foot facility now under construction in nearby Huizhou. A portion of the new facility will be subleased to Leggett & Platt, which supplies mechanisms to Man Wah\'s motion, home theater and sofa-sleeper products. Contreras joins Cheers Sofa/Man Wah Holdings Had been with Coaster five years -- Furniture Today, 11/13/2007 6:10:00 AM HIGH POINT - Sam Contreras has joined leather upholstery producer Cheers Sofa/Man Wah Holdings as vice president of sales and marketing, a newly created position. Contreras was with importer Coaster for five years as product manager for leather and most recently living room. Previously, he worked for retailer Robinson\'s-May. At Cheers, Contreras is responsible for assisting major accounts and managing the national sales force. He reports to Stephen Barr, president of Cheers Sofa USA. \"As a growing company, we want to make sure we have enough personnel to support our accounts and our sales force. Sam is going to help us achieve our goal of being one of the top motion companies in the world,\" said Barr. Contreras remains based in Redondo Beach, Calif.

I think many shareholders do not know this: CEO Wong Man Li is the winner of the Young Industrialist Awards of Hong Kong 2007. This annual award was given by the Federation of Hong Kong Industries to honour outstanding industrialists for their achievements and commitment to manufacturing industry. Judges\' Comments: * A triumphant industrialist * A significant player in the industry * Insistence on quality and efficiency Source: www.yiah.org/eng/yiah/2007ManliWong.html According to this site, Mr Wong is the chairman of China National Furniture Association (sofa professional committees), vice chairman of the International Furniture & Decoration (HK) Association, the China Furniture & Decoration Chamber of Commerce and the chairman of Nanan Enterprise Association.