MAN WAH Holdings Ltd (HK: 1999) expects China’s high-speed rail network to be one of many locomotives of revenue growth.
China’s top recliner sofa maker, whose CHEERS brand is No.8 in the US, has just announced new deals worth 26.4 mln yuan to furnish the country’s CRH series of high-speed trains with high-end furniture, including sofas and sofa beds along with related after-sale services.
The project agreements were inked between wholly owned subsidiary Man Wah Furniture Manufacturing (Huizhou) Co Ltd and Qingdao Sifang Railway Transportation Equipment Co Ltd.
Under the deal, Man Wah will grant Qingdao Sifang irrevocable options until December 31, 2011 to purchase the agreed quantity of railway car furniture in batches.
The total consideration payable to the Man Wah amounts to approximately 26.4 mln yuan if all the orders under the project agreements are completed.
“This is our 2nd such agreement with the national railway locomotive and rolling stock manufacturers following the first agreement in July,” said Mr. Wong Man Li, Chairman and CEO of Man Wah.
The new revenue streams comes after a very strong year-to-March performance for the firm, which saw revenue soar by 49.3% to 2.9 bln hkd backed strong sales in the US and Chinese markets.
"Man Wah has achieved an outstanding financial performance due to our strong branding and product differentiation. The group is focusing on the long-term sustainability of the business rather than a short-term gain in business volatility. This has allowed the company to create significant advantages that now support the growth,” Mr Wong said at the time.
Sales in the US, Man Wah’s largest market, rose 71% year-on-year to 1.33 bln hkd.
Meanwhile, sales in China also rose a robust 54% to 750.3 mln hkd.
Profits for the most recent fiscal year were 617.3 million Hong Kong dollars, or about $79.4 million. That's up from 228 million Hong Kong dollars, or about $29.3 million, the previous fiscal year.
The company first listed on the Singapore Stock Exchange in 2005, raising 16.7 mln sgd, and then delisted and delisted on September 2009 in preparation for an April 2010 Hong Kong listing.
Man Wah has two upholstery factories and one bedding plant in the PRC.
In the Chinese market, most of its products are sold via a network of around 300 company-owned and franchised stores.
Government Support: Full Steam Ahead
Man Wah is enjoying both natural market demand and policy driven demand thanks to a very supportive government policy initiative backing additional expansion of the country’s existing high-speed train system.
The Chinese government plans to spend about 120 bln usd to nearly double the country's high-speed rail network by 2012 as part of an ambitious campaign to expand the national railway system.
“We are confident that with our market leading position for high quality furniture products, there will be more similar agreements to come in the near future,” Mr. Wong added.
Beijing has stated that it plans to invest some 800 bln yuan to lay around 6,000 kilometers of new high-speed track across the nation.
China currently has 6,920 kilometres of high-speed railway lines in operation, and the Ministry of Railways predicts that by 2020 the country should have over 16,000 kilometers of high-speed track.
When China’s major rail lines are completed by 2020, the will comprise the largest, fastest and most technologically advanced high-speed railway system in the world – good news for Man Wah which is happy to see its clients relaxing on its sofas either at home, or whizzing across the country at 300 kilometers per hour.