20160707-大华继显-敏华控股-01999.HK-A_Leading_Brand_In_The_Recliner_Sofa_Market_16页_203kb

Summary of Man Wah Holdings (1999 HK)

Core Content

Man Wah Holdings (1999 HK) is a leading brand in the recliner sofa market, with a strong presence in both China and the United States. The company designs, manufactures, and sells recliner sofas under the Cheers brand, along with mattresses and bedding accessories. It is currently listed on the Hong Kong Exchange and is considered a key player in the industry due to its market share and growth potential.

Main Points

• Market Position:

  • Man Wah holds around 30% of the China motion recliner sofa market and 10.9% in the US market (2015).
  • It has been gaining market share in both markets since 2010.
  • Cheers is the top brand in China and the third in the US.

• Growth Drivers:

  • Recovery of the property market in both China and the US is expected to benefit Man Wah.
  • Low raw material prices due to the drop in oil prices have contributed to improved gross profit margins.
  • Expansion plans include adding 200 distributor stores in China annually and entering tier-3 and tier-4 cities.
  • The dividend payout ratio is around 40%, and the company has a history of share repurchases, which can provide share price cushion.

• Financial Performance:

  • In FY16, Man Wah reported a net profit of HK$1.32b, representing a 23.4% yoy increase.
  • Gross profit margin (GPM) increased to 39.5% in FY16, up from 35.6% in FY15, and is expected to slightly decline in the coming years.
  • Operating profit rose to HK$1.322b in FY16, and the EPS increased to HK$68.3.
  • The net cash position at end Mar 16 was HK$1.4b, with HK$250m in outstanding borrowings.

• Valuation:

  • The company is currently trading at 15.9x FY17F PE, which is 15% lower than its industry peers.
  • The target price is set at HK$13.50, based on a 17.4x FY17F PE, which is 10% higher than La-Z-Boy.
  • The dividend yield is expected to increase to 3.7% in FY19, reflecting the company's shareholder-friendly policies.

• Investment Highlights:

  • Man Wah is well-positioned to benefit from the recovery of the property market in China and the economic growth in the US.
  • The company is dividend-focused and has a strong balance sheet, which supports share repurchases and dividend payouts.
  • Strategic partnerships with online retailers like Wayfair and the potential for stationary sofa sales in the US could drive future growth.

Key Information

• Share Price: HK$12.36 (as of 7 July 2016)
• Target Price: HK$13.50
• Upside: 9.2%
• Dividend Yield (FY16): 2.8%
• Net Margin (FY16): 18.1%
• ROE (FY16): 29.1%
• Market Cap (HK$m): 23,809.8
• Market Cap (US$m): 3,072
• Shares Issued (m): 1,926.4
• Major Shareholder: Man Wah Investment LTD (63.15%)

Financials Overview

Risks

• Deterioration of the property market in the US and China.
• Rise in raw material prices.
• Currency fluctuations.

Valuation and Investment Recommendation

• Target Price: HK$13.50
• P/E Ratio: 17.4x FY17F PE
• Investment Rating: BUY
• Reasoning: Man Wah's strong ROE, leading market position in China, and shareholder-friendly policies justify the premium valuation compared to its peers. The company is expected to benefit from the recovery of the property market and low raw material prices.

Conclusion

Man Wah Holdings is a well-positioned player in the recliner sofa market, with strong financials, dividend and repurchase policies, and growth potential in both China and the US. The company is currently trading at a discount compared to its peers and has the potential to outperform in the coming years due to its market leadership, efficient operations, and strategic expansion plans. The BUY rating is supported by its strong balance sheet, positive macroeconomic trends, and competitive advantage in the Chinese market.