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Man Wah's results briefing was well attended by 16 journalists and 27 analysts.
MAN WAH HOLDINGS Ltd (HK: 1999) is in the catbird seat, so to speak.

For the year-to-March, the Hong Kong-listed reclining sofa maker (which delisted from the Singapore Exchange late last year) grew its revenue by 49.4% to 2.93 bln hkd.

But even more impressive was its net profit for the 12-month period, which rose by 171% to 617 mln hkd, giving Man Wah an enviable 42.9% gross profit margin.

In a results briefing in Hong Kong yesterday attended by 16 journalists and 37 analysts, its executives said they were not satisfied with their industry leading 16.2% market share in the PRC.

The gross profit margin actually increased by 7.2 percentage points for the period, further giving the company confidence to increase its share in China's reclining sofa market, which the company says has huge growth potential.

"The total market for these products in China last year was worth some 300 mln usd, and we fully expect it to grow on an annualized basis by around 35% for the next several years. So our growth strategy is definitely geared to China," Mr. Wong Man Li, Chairman and Managing Director of the company, said.
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Plenty to Smile About for Finance Director Francis Lee (left) and Chairman Wong Man Li as net profit leapt 171% to 617 mln hkd.

Mr. Wong said A&P efforts over the past year have reaped tremendous benefits.

"Our successful business strategies have led to a very outstanding FY2010 result.  We have rapidly expanded our stores and invested in the advertising & promotion in FY2010 due to the growing consumer market in China.  In FY2011, we will keep increasing our stores expansion to 669 combined with our aggressive advertisement strategy.”

He was very sanguine on the Hong Kong-listed firm’s prospects in the PRC, and having the top market share in the country no doubt did wonders for a company’s confidence.

“We expect the PRC market to grow rapidly. We currently have the top market share in China for our product category, and we plan to consolidate this position further. We are not satisfied with our domestic market share,” he said.

Basic earnings per share over the period were 85.1 HK cents, representing an increase of 169.3% compared to the same period of last year.
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The Board of Directors recommended a final dividend of 16 HK cents per share and a special dividend of 6 HK cents per share. This brings the total payout of dividend to 22 HK cents per share, representing a payout ratio of 35%.

Brand New Branding Campaign

Man Wah knew that to succeed in a crowded domestic market and a hyper-competitive export market, its brand awareness level had to stand out in the sit-down market.

That is why the reclining sofa maker was serious about making the CHEERS line of furniture more well-known the world over.

“Man Wah has achieved an outstanding financial performance due to our strong branding and product differentiation. According to Euromonitor International, the recliner sofa industry was growing at a tremendous rate over the past 3 years in the PRC and we leveraged on this industry growth momentum to grow at an even faster pace,” Mr. Wong said.

This attention to image and recognition, as well as an insistence on quality and profitability, has not only earned Man Wah top spot in the China market, but has made it No.8 in the world’s biggest country market for reclining sofas – the US.

In fact, Man Wah is the only Chinese firm in the top 10 there.

“We view branding as a key element in growing the Man Wah business. We have established CHEERS as the market leader in the PRC reclining sofa sector with a leading market share but the management is not resting on its laurels and has engaged a global branding consultancy firm to help us create a world-class PRC brand.

“To better promote the CHEERS brand in China, we have also retained Mr. Sun Hong Lei, a famous movie star in the PRC, as our brand spokesman. In the US and Europe, there are series of promotional activities to brand CHEERS as an alternative to the market leaders. There are great successes as we have expanded the market share in the US market rapidly over the past three years.

“On the other hand, the mattress division is also committed in growing its premium ENLANDA brand in Hong Kong and China while LAND brand is also gaining popularity for its wood-based furniture.”

All this robust recent growth, as well as optimistic outlook for future quarters, was possible in large part thanks to the company’s strong appreciation for brand building.

We will keep investing in brand development, spokespersons, and sponsor events and activities that help us boost our brand image, and we will continue to develop our brand in the EU and the US,” Mr. Wong said.

Robust Cash Position, Expansion Plan
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.Man Wah has conquered 16.2% of the Chinese reclining sofa market
.

Thanks to a strong year-to-March with a robust order book, the working capital cycle improved and decreased by
4 days to 10 days compared to the same period last year.

Cash flow generated from operating activities increased by 86.4% to 606.2 mln hkd with bank balances and cash increased by 63.7% to 375.5 mln hkd as of March 31, 2010.

The company also had one of the most cost-competitive workforces in the industry.

“Labor costs are manageable for us. They will rise, but we have the ability to increase ASPs. We are very competitive in another area, as 12% is the average of total costs in this industry in China that is usually allotted to labor costs, but we are at just 9%, so we are more operationally efficient than our peers,” Mr. Wong said.

And to better serve the company’s fastest growing market, it was fully committed to expanding showrooms and retail outlets across China.

“As our business grows, the importance of controlling brand image and positioning also becomes of utmost importance. We accelerated retail expansion plans in China during FY2010 to cater to a strong growing demand for CHEERS and ENLANDA products,” Mr. Wong said.

This necessitated a carefully planned strategy for maximizing domestic sales, a definite requirement for a 1.3 bln strong consumer market that exhibits wide disparities geographically. 

“To ensure a balance between distribution channel expansion and brand image control, we decided on a two-tier strategy whereby self-owned stores will be set up in Tier 1 cities such as Shanghai and Beijing while distributor stores for CHEERS and ENLANDA brands will be opened in Tier 2 and 3 cities.

“As the CHEERS brand grows stronger in China, we target to set up 25 flagship stores in strategic locations across China to provide customers with a more pleasant shopping environment and to enhance customer satisfaction.  As for retail stores, to date we have 531 retail stores (312 CHEERS and 219 ENLANDA) in China.

The completion of its Huizhou facility in 2007 allowed total capacity to expand to 516,000 units per annum which allows the company to expand its global sales and PRC domestic retail presence.

Mr. Wong added that Man Wah has plans to expand the Huizhou capacity to 816,000 units per annum by 2011.

As a China-based producer, Man Wah was aware of the risks of a rising yuan, especially after the central bank hinted at a revaluation over the weekend.

However, the company was a seasoned practitioner in minimizing valuation volatility.

“The RMB/USD exchange rate issue is not new to us. In 2005, we got used to it. In 2006-07, it was a tremendous challenge for our company. But if you look at our financial results over the past few years, we still managed to perform well,” Mr. Wong said.

See also: Man Wah: No.1 in China, No.8 in US


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