We are highly positive on Man Wah (“MW”) in FY21E-22E, considering: 1) rapid store expansion ahead, 2) its competitive products and marketing under current promotional environment and 3) robust overseas order despite short-term FX pressure. Therefore, its valuation of 21x FY3/22E P/E and 1.2x 3 years PEG is still attractive, vs Jason furniture’s 31x and 2.3x and Oppein Home’s 32x and 2.4x.
- 1H9/21 results beat. MW’s 1H21 sales/ net profit rose by 19%/ 7% YoY, beating BBG est. (sales growth is a clear beat vs 19% consensus sales growth in FY21E). GP margin in China fell by 1.5ppt YoY, due to more renovation subsidies and sales rebates, as well as ASP drop by channel mix change. Yet, it was offset by better GP margin from other segments. Excluding losses from FX and one-off investment fair value changes, adjusted net profit would have gone up by 26%. Payout ratio was also raised to 51% in 1H21 from 44% in FY20.
- Impressive sales growth is likely to stay in near term. Group sales growth accelerated to 19% YoY in 1H21, from 14% YoY in 2H20, driven by: 1) 53% China sales growth (65%/ 50% for online/ offline) and 2) resilient US sales (only 1% sales decline in 1H21 even after a weak Apr-Jun 2020 where most production was halted). We believe growth can accelerate in 2H21E, thanks to: 1) faster store expansion amid industry consolidation, 2) more active marketing with more pop-up stores and competitive products and 3) better exports orders, as booking is already full until CNY 2021.
- Rapid store expansion in China just started. MW believes now is the best time to expand as more quality space in shopping mall has been freed up due to industry consolidation after COVID-19, and they are also penetrating faster into lower tier cities. 658 new stores were opened in 1H21 (~30% YoY growth), speeding up from 260 stores in 2H20 (~10% YoY growth). Management expects at least 400 new stores in 2H20E and 5,000 total stores should be achievable in three years (by FY23E).
- New CEO to boost efficiency through digitalization. MW recently hired a new CEO Feng Guo Hua, who was GM of the Greater China Corporate Service Department of Microsoft (China) from 2016 to 2020. Before that, he was a VP and managing partner at IBM Global Business Consulting Service Department. During the results briefing, he pointed out that MW could refine various areas through digitalization, such as: operation efficiency, customer relationship management & marketing and overseas businesses.
- Still have room for further EPS upgrades and valuation re-rating. We believe consensus numbers may be revised up after earnings beat, and further re-rating can be enhanced by more buying from southbound investors. According to BBG’s est. the counter is trading at 21x FY20E P/E and 1.2x PEG, which is still undemanding vs industry’s 23x and 2.1x.
