GOING BY the questions they asked, retail investors who thronged the AGM of Man Wah Holdings on Saturday, July 21, were disappointed with the company’s 8.8% rise in net profit in FY '07. It reflects a fall in profit margins even though sales surged 59%.

Their disappointment, however, is not shared by another group of investors: They had bought heavily into Man Wah shares on July 18, just three days before the AGM held at Fullerton Hotel.

They bought a total of 21,411,000 shares, or 6.43% of the issued share capital of Man Wah, at 40 cents a share from OCM Emerging Markets Fund, a wholly-owned subsidiary of Oaktree Capital Management.

Oaktree has exited completely with a big gain. While the exact sum is unknown, just consider that Oaktree bought 5 million shares in Nov 2005 for an average of only 26.5 cents apiece. That purchase was made public as it propelled Oaktree over the 5% shareholding level and it became a substantial shareholder.

Mr and Mrs Wong bought 2.5 m shares of Man Wah for 47.74 cents apiece on 18 July

The buyers of Oaktree's holdings were two local funds and a prominent individual investor – all of whom have a track record of having the Midas touch in investing. 

As the three unidentified investors’ respective purchases are below 5% of the issued share capital, they are not required to publicly declare their interest.

On the same day, Man Wah chairman and founder Wong Man Li, 42, and his wife, Hui Wai Hing, demonstrated their confidence in the prospects of their company.

They bought 2.5 million shares from the open market at 47.74 cts, raising their stake to 203,690,000 shares, or 61.15%.

The purchase was made through their wholly-owned vehicle, Man Wah Investments.

Forecast 23% rise in profit & EPS for FY’08

Artist's impression of new factory: production capacity is set to double in FY08.

In the meantime, Man Wah’s factories looks set to get busier. In FY07, production capacity was expanded by 49% to 153,000 sets of sofas per annum.

By August 2007, the capacity will jump by 98% to 303,000 sets of sofas per annum. In her report on July 25, OCBC Investment Research analyst Lee Wen Ching said that the second phase of expansion is expected to be fully operational in the second half of FY08.

She projects an annual output of 191,000 sets of sofas in FY08. This leads her to project revenue of HK$1.2b for FY08, a 44.5% year-in-year increase.

Net profit is expected to hit HK$111.1m, a 22.5% rise.
 These projections take into account continued challenges such as increasing costs of leather and labour and a strengthening yuan against the US dollar.

Ms Lee's estimate of the fair value of Man Wah stock is 61.5 cents based on 8x blended FY08/09 price-earnings ratio. The stock recently traded at 48 cts, giving the company a market capitalization of $160 million.

That is nearly $100 million more than the market cap of $66.7 million that Man Wah commanded during its IPO in June 2005.

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