ad astra per alia porci


Man Wah Holdings
April 24, 2007, 12:55 pm
Filed under: companies analysis

Man Wah Holdings (SGX: M42)

As of 20 April 2007

EPS: 0.06064 SGD/share

P/E ratio: 8.245

Earnings Yield: 12.128% (!!!)

52 Week High: 0.625

52 Week Low: 0.390

The One Minute Story

Man Wah Holdings is a furniture company based in Shen Zhen, China that manufactures leather sofas and other furniture under the “Cheers” and “Land” brand names. Man Wah sells sofas to local markets (China and Hong Kong) as well as overseas markets, specifically North America and Europe. Overseas sales has seen a lot of growth, with North America and Europe accounting for 56% of revenue in 2006. Man Wah is primarily a sofa-maker, with sofas accounting for 90% of revenue. It has opened 101 “Cheers” stores in China and intends to hit 160 by end FY2007.

Financial Analysis (in HK dollars)

YEAR

2006

2005

2004

2003

2002

Book Value Per Share

0.855

0.530

0.250

 

 

Cash Per Share

0.126

0.073

 

 

 

Cash Flow Per Share

0.210

0.00540

 

 

 

Earnings Per Share

0.303

0.281

0.231

0.024

0.024

Dividend Per Share

0.0067

0.0230

 

 

 

Dividend Payout Ratio

2.21%

8.185%

 

 

 

Net Profit Margin

15.6%

19.2%

21.6%

2.9%

3.4%

Return on Total Asset

24.3%

31.0%

31.4%

 

 

Return on Equity

33.6%

24.3%

 

 

 

Current Ratio

3.08

1.29

 

 

 

Long Term Debt of Capitalisation

13.7%

 

 

 

2005 figures only reflect results from November 4, 2004 to March 31, 2005

The main problem is assessing Man Wah’s financial condition is the lack of data and the fact that its a relatively new listing. But its obvious that it experienced a burst of growth in 2005. Net profit margins are healthy at 15.6%, which might be because its in the mid to high price bracket for sofas. Cash flow is strong with a strong conversion to earnings while ROE seems to indicate that the managers are good allocators of resources. The current ratio is healthy, which helps because Man Wah has taken on some debt. This is probably fine because its in the midst of aggressive expansion.

Why Buy

  • Financially sound with strong profit margins which seems to indicate differentiation in product
  • A very simple business which depends a lot on expanding its revenue and selling as many sofas as possible.
  • Its surprising to see that Man Wah depends on overseas markets for 50% of its profits, which might expand in the future.
  • Since it sells mid-end sofas, it might tap into the expanding Chinese middle-class consumer market

Potential Problems

  • Dependence on Chinese, if not global, consumer sentiments. A drop in economic growth or decrease in overall consumer spending might hurt profits.
  • The US is not particularly fond of cheap Chinese goods. Expanding more into the US market might be a problem, especially if tariffs are put in place.
  • Reliance on only one year of good financial performance. Man Wah has not yet shown sustained good performance for a long period of time.
  • I don’t see how special are the sofas in terms of design and quality. Other competitors might catch up or crowd out the market.

What to Look out For

  • US government tariffs on Chinese imports, especially furniture.
  • Man Wah’s expansion plans into China and Europe.
  • Changes in consumer sentiments.
  • Changes in profit margins might indicate if Man Wah is suffering/benefiting from competition.

Strategy

  • Being a very simple to understand business that thrives on duplicating itself everywhere and selling more and more to more and more people, I might just buy the stock to ride on the wave of growth and expansion of business until its peak. Question is, when will it peak?
  • Probably not a company to buy and hold forever, barring any great changes. Man Wah is not a future IKEA, although anything is possible I guess.
  • Price of 50 cents a bit too high for a margin of safety. Wait for price to drop before buying.

Disclaimer: The author bears no responsibility for any financial losses caused by reliance on the author’s views. Investors are advised to do their own research before making their investment decisions.

Advertisements

Leave a Comment so far
Leave a comment



Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s



%d bloggers like this: