MAN WAH Holdings Ltd (HK: 1999), China’s No.1 reclining sofa brand, is “confident of a strong second half,” Chairman Wong Man Li told investors and journalists last night.
The company yesterday announced that its April-September net profit shot up 41.7% year-on-year to over 371 mln hkd on a surge in US sales and a rapid expansion of its PRC store numbers.
The Hong Kong-listed firm, which delisted from the Singapore Stock Exchange late last year to relist in Hong Kong in April of this year, saw an even stronger top line growth over the period.
Revenue surged by 49.2% year-on-year in the company’s first half of FY2011 (April-September 2010) to reach a record 1.98 bln hkd.
Man Wah’s April-September reclining sofa sales rose 37.8% year-on-year to over 312 mln hkd, and a rapidly expanding domestic store count total as well as higher selling prices were significant factors.
Average selling prices (ASPs) for the company’s sofas in Mainland China over the period rose 14.3% year-on-year to reach 12,000 hkd.
Meanwhile, Man Wah had 579 CHEERS and ENLANDA Specialty Stores in the PRC as of September 30, 2010, the end of its 1H FY2011 period, and the firm planned to raise this to 689 by the end of FY2011 and would top 1,000 by FY2013.
“We are confident of a strong second half (October 2010 to March 2011), but whether it can be as strong as the half we just had will remain to be seen,” Chairman Wong told the large group of investors and reporters.
However, he wanted to put investors at ease over any potential downside from possible interest rate or other regulatory action by economic regulators to help ease the high-flying PRC property market.
“We are in quite a good position because our sales have tangible correlation in the PRC with domestic property sales volume, but not with property prices themselves,” he said, assuring investors that the ongoing epochal level migration of millions of rural laborers to urban areas would continue to create a demand for new housing units and thus Man Wah products.
This meant Mainland China would increasingly play a larger role in terms of Man Wah’s top-line contribution.
“Thanks to continued domestic economic growth, PRC consumers helped our domestic sofa sales grow nearly 38%. And the strong growth is expected to continue in both domestic and overseas markets,” he said.
Another exciting new platform for PRC sales was the train platform.
More specifically – the passenger carriages on the country’s rapidly expanding high-speed railway network.
“This July we signed a landmark 152.7 mln yuan contract to supply mainly sofas, sofa beds and related after-sales services to China Railway High-Speed (CRH). There are over 10,000 kilometers of high-speed rail line under construction, which show us tremendous growth opportunity and will bring more exposure for our CHEERS brand,” Mr. Wong said.
He said this presented Man Wah with not only a strong new recurring revenue stream, but a free advertising platform with millions of potential customers using and better understanding their clearly-branded furniture as both sofas and people speed between Chinese cities as several hundred kilometers per hour.
He told us there was no way to know at this point precisely how rapidly the high-speed train orders would grow going forward, but he was confident that they would take off once the system was fully up and running.
“CRH will be a form of brand-building for CHEERS. Passengers sitting on our reclining furniture will not only come to better recognize our brand but may well consider buying some for their living rooms.”
But as China’s economy barrels ahead with the confidence of a sleek locomotive, industrialized economies around the world struggle to emerge from lingering slowdowns
Ireland and Greece are preparing for years of austerity in order to repay massive bailout packages, and the world certainly looks on the PRC with both admiration and envy at its recently reported third quarter growth of 9.6%.
“Due to rapid economic growth in China, growing incomes of its citizens and the enhanced spending power that this brings – as well as the positive effects of a strengthening Chinese yuan – consumers in the PRC are increasingly willing to purchase durable goods and furniture as they constantly endeavor to improve their living and working environments amid rising living standards.
“In addition, the US recently launched its QE2 (600 bln usd cash injection) to help kickstart its economy, which is expected to boost our export sales. Looking at a whole range of economic and market factors, all are very positive for us. From the strong orders we can see, CHEERS’ market share will be further enhanced both in the PRC and the US markets.”
No doubt, this optimism is bolstered by managing to be the No.8 player in the highly competitive and developed US market, and No.1 in the PRC.
“We are confident that we can maintain robust results going forward, and provide even better returns for our shareholders,” Mr. Wong said.
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