CICC: Maintains MAN WAH HLDGS outperform industry rating, lowers target price to HKD 6.5

According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that considering the pressure on domestic market demand for MAN WAH HLDGS (01999) and the impact of tariffs on exports, the bank has lowered its FY2026 net profit forecast by 21% to HKD 2.128 billion, and introduced a FY2027 net profit forecast of HKD 2.255 billion. The current stock price corresponds to an FY2026/FY2027 P/E of 8/7 times. The rating is maintained as outperforming the industry, and considering valuation switching and profit forecast adjustments, the target price is lowered by 7% to HKD 6.5, corresponding to an FY2026/FY2027 P/E of 12/11 times, with a 53% upside potential compared to the current stock price.

CICC's main points are as follows:

FY25 performance below expectations

In FY25, the company achieved operating revenue of HKD 16.903 billion, a year-on-year decrease of 8.2%, and a net profit of HKD 2.063 billion, a year-on-year decrease of 10.4%. The non-recurring net profit was HKD 2.347 billion, a year-on-year increase of 1.3%. The performance was below expectations mainly due to the impact of impairment provisions. The company plans to pay a dividend of HKD 0.27 per share, with a payout ratio of 50.8%.

Domestic sales market under pressure, European market maintains strong growth

1. Domestic sales: Affected by market weakness and intensified competition, FY25 domestic sales revenue was HKD 9.927 billion, a year-on-year decrease of 17.2%. Excluding the iron frame, FY25 revenue was HKD 8.992 billion, a year-on-year decrease of 16.5%. Sofa revenue was HKD 6.584 billion, a year-on-year decrease of 15.4%, with sales volume/ASP down by 10.6%/-5.4% year-on-year; mattress revenue was HKD 2.408 billion, a year-on-year decrease of 19.4%. 2) Exports: FY2025 North American market revenue was HKD 4.420 billion, a year-on-year increase of 3.2%; under the influence of market expansion and customer stability, revenue from Europe and other overseas markets was HKD 1.469 billion, a year-on-year increase of 22.9%, with HG revenue at HKD 0.777 billion, a year-on-year increase of 15.3%. The bank expects that despite tariff disturbances, the company is likely to maintain a steady growth trend due to its high-quality supply chain and customer base.

Cost reduction and efficiency improvement effects are good, gross margin continues to rise

Due to improved operational efficiency and stable raw material costs, the company's FY2025 gross margin was 40.5%, a year-on-year increase of 1.1 percentage points, with the North American market gross margin increasing by 4.4 percentage points year-on-year. The sales expense ratio was 18%, a year-on-year increase of 0.19 percentage points, the management expense ratio was 4.44%, a year-on-year decrease of 0.75 percentage points, and the financial expense ratio was 0.87%, a year-on-year decrease of 0.21 percentage points. Due to the impact of impairment provisions, the net profit margin was 12.20%, a year-on-year decrease of 0.3 percentage points. The bank expects that as the company stabilizes raw material costs and promotes cost reduction and efficiency improvement, its profit level is likely to remain at a reasonable level.

Continuous optimization of offline stores, with hopes to accelerate online channel layout in the future

1. Offline: Affected by store optimization adjustments, the company had a net increase of 131 stores to 7,367 in FY2025. Due to the store optimization strategy, there was a net decrease of 149 stores in the second half of the fiscal year compared to the first half. FY2025 offline store revenue decreased by 16.6% year-on-year to HKD 6.799 billion. The bank believes that as the company accelerates the layout of a series of brand stores, the number of stores may continue to expand Risk Warning: Significant fluctuations in raw material prices, unexpected downturn in real estate prosperity, and risks in overseas trade