Man Wah - A multi-bagger in the making?

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16 years 1 month ago #423 by scbchan
Peter, I think to find a stock which \"will not be obsolete\" is equivalent to finding a business with one or more economic moats. \"The little Book that Builds Wealth\" by Pat Dorsey deals with this topic very well. According to Dorsey, there are fundamentally 4 types of moat: 1. Intangible assets (profitable brands, patents, regulations) 2. Switching costs (tight integration with customer\'s business, monetary costs in switching, retraining costs) 3. Network effect (value of company\'s product or service increases with no. of users) 4. Cost advantages (cheaper processes, better locations, unique resources, large distribution networks, manufacturing scale) Since this thread is on Man Wah, I will share my view on Man Wah\'s moat: Man Wah has the Cheers brand which is one of the top 8 sofa brands in China. But I am not sure this is a moat since if they cannot charge customers a higher price with the brand, we cannot say the brand is a moat. Someone living in China can assess this better. I think their moats really lie with the cost advantages, both in manufacturing scale and distribution networks, the latter of which apply both in China and in the US. The China network will soon be expanded to include the existing Famous Bedding outlets. Their Macau tax exemption on export is certainly a cost advantage but it may not be a permanent one. It is interesting to note that Dorsey shares Warren Buffet\'s view that good management is not a moat by itself: \"When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.\" Having said that, Man Wah having a shareholder-focused management team is definitely a bonus.

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16 years 1 month ago #424 by Gary Teh
Well said SCB Chan (Sebastian??). Above and beyond anything else is the management of the company and how it treats it\'s shareholders. As for a business moat, for me I believe it is a mix of the business, economics, intangibles (brand or patent or politics) and of course management akin a four legged chair. Each cannot operated independently...it may wobble for a while but eventually it crumbles under it\'s own weight. As brilliant WB is as a business manager he could not save Salomon Brothers (acquired by Citi) and also Berkshire Hathaway textiles business. As for Man Wah, I\'m very encourage from what I see. However, I\'m a little skeptical as to the growth trajectory being maintained and that is why I\'m forecasting a 12% CAGR..for the next 5 years and even that I end up with a ten bagger assuming valuations return to normal ie: 15 times earnings. Well, as I\'m writing this the DOW is down almost 300 points and maybe cheap will get cheaper tomorrow when the SGX opens...maybe not for Man Wah which seems to be holding up quite well relatively speaking especially compared to Cacola which has just tanked beyond belief.

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16 years 1 month ago #433 by peter lee
Hello seniors , having seen many interventions which range from governments to central banks. are we near the bottom of the market? thank you in advance for your contribution.

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16 years 1 month ago #435 by Gary Teh
I do not think anyone really knows...we can only make judgments from historical perspective. Even WB doesn;t know...if he doesn\'t I wonder who dares come up to make the call. I would only say that the valuations seems compelling right now...company specific. The best for you to do right now if you want to catch the bottom is to read my other threads on investing in batches so that you may potentially ride the bottom and not betting all at once at any particular moment. Over the long term though it really does not make a huge impact. The good thing about recession or depression is that it sets the stage for another long term rally and for those who begin to invest right now with fresh money is definitely in the best position...\'timing\' wise. There is always a floor...it just depends how ridiculous it can get. China Sky for example is so cheap that it is trading for the cash in hand for FY08 or lower than Net Current Asset!! So what that means is that if you take out the cash and pay off the creditors...essentially you;re buying the business and the factory (tangible asset) for FREE! and the business is very profitable by all means and generating loads of cash. As I mentioned the market is so dislocated that the price now is a huge bargain... Since we are on the Man Wah thread...why is the price holding relatively strong compared to it\'s other peers?? I expected it to be at par with Cacola but no..it held ground. Maybe the existing shareholders understand that it is a gem and selling at this levels does not make any sense at all...so the price holds. I hope my message is clear but feel free to ask anytime.

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16 years 4 weeks ago #439 by scbchan
In my opinion, there are 2 reasons why Man Wah price is holding well while Cacola isn\'t: 1) Since 2006, Man Wah has been facing headwinds on 2 fronts: sharp increase in the raw hide price and the housing problem in US. Against this backdrop, those who invested in Man Wah tend to be less opportunistic and have longer term holding power. Cacola is in a more favourable environment: Chinese demand of furniture is strong, minimal export sales so not much affected by US slow down and exchange rate movement, and their business model is on a cost-plus basis hence less affected by volatility of raw material costs. With these tailwinds, the market assigns less risk to Cacola which may have attracted a higher proportion of short term traders in their shareholders pool. I think the Cacola price drop are caused by those short term traders throwing in the towel. 2. The Famous Bedding acquisition provides a strong incentive for long term shareholders to support the price. This support is essential to minimize unfair dilution arising from the new share allotment in exchange of Mr Yu\'s stake in Famous Bedding. Will be interested to hear other views on this.

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16 years 4 weeks ago #441 by Gary Teh
Hi there again, Cacola seems to be a far better value buy than Man Wah for now. The choice is a classic toss up between a great company (management and shareholder friendly) selling at a fair price versus a good company selling at distress level. The problem I have with Cacola is that there is not much news from them and I\'m still of the opinion that their investor relation sucks thus can\'t be too good compared to Man Wah. Maybe Next Insight should give Cacola some feedback about negative perception out there from the investing public and if they are truly shareholder friendly they should respond favorably....but I doubt it. I\'m sure than WB will go for Man Wah but his mentor (Benjamin Graham) will go for the Cacola. I\'m not as smart (not even by a mile) as they are so I\'ll double dip and go for both..

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