MAN WAH HOLDINGS Ltd (HK: 1999), with its CHEERS brand of reclining sofas, is tops in China with a commanding 16.2% domestic market share, even more impressive as No.2 is a distant 4.0%.
And Man Wah’s Finance Director Mr. Francis Lee said during an Aries Consulting Company of the Month event this week that the company is working very hard to grow even faster in China.
"We are not resting on our laurels, but are continually improving quality and design, and adding optional functions like massage units. And of course we are expanding both our manufacturing and retail outlet capacity,” Mr. Lee told a conference room full of investors and fund managers.
He said that meant boosting market share both at home in the PRC and also in key overseas markets such as North America, where the company is in eighth spot with a 2.6% share – a market which Mr. Lee calls “very mature.”
Total revenue for the financial year-to-March 2010 rose a robust 49.3% year-on-year to 2.93 bln hkd.
Although 70.3% of this was derived from exports during the period, mainly to the US, Man Wah expected sales in the PRC via its growing retail chain to be the primary growth driver going forward.
“We employ a twin-pronged strategy focused on both developing our retail presence in the PRC and also direct exports to over 50 countries around the world. Currently we have 296 CHEERS and 213 ENLANDA specialty stores covering 20 cities in the PRC as well as nine stores in Hong Kong.
“Our two key PRC retail segments – sofas and bedding – were our fastest growing segments in FY2010 supported by the robust economy and the expansion of our CHEERS and ENLANDA store network throughout the PRC,” he said.
Photo: Frances Leung
The company was not content to sit back on its sofas and enjoy its prestigious position as China’s No.1 reclining furniture maker, but was instead always looking to expand, especially in the domestic market.
To that end, Man Wah was looking to boost its total PRC retail store presence to 689 shops by next year.
The ability to keep these new stores stocked with merchandise was also being addressed through capacity expansion.
The company currently operated two factories – one in Shenzhen with an annual capacity of 50,000 sofa sets, and the other in Huizhou with annual capacity of 516,000 recliner sofa sets.
“We plan to expand capacity in Huizhou to 816,000 sets by FY2012, and will also soon begin work on a new plant in Suzhou with expected capacity of 300,000 sets per year. This latter project will reduce transportation costs in northern China and also bring our name to more consumers there,” Mr. Lee said.
A breakdown of Man Wah’s recent revenue figures reveals the reason for the strong interest in developing domestic business.
Exports still brought in the most revenue, rising an average of 47.0% over the past four years to reach 2.06 bln hkd in FY2010, comprising 70.3% of total sales.
However, sales of bedding products to the combined PRC/Hong Kong market rose an average of 76.7% over the same four years to reach 193 mln hkd in FY2010, while sofa sales to PRC/Hong Kong over the period increased by an average of 50.0% to hit 678 mln hkd in FY2010.
Brand New Concept
Half the battle for Man Wah in the PRC was getting out the message about the pleasures of reclining sofas and chairs.
This not only meant promoting the concept of reclining at home while reading or watching television, but also helping create a link between the CHEERS brand name and the whole notion of at-home relaxation.
And as Mr. Lee explained, the company was also looking beyond the living room and bedroom and had already inked major orders for reclining furniture for the countriy's high-speed first class rail coaches as well as high-end cinema seating in major urban markets.
“For example, there is still a lot of growth potential in Shanghai (China’s most populous city), especially targeting the new home market there. Also, we are looking at cinema seating in the city,” he said.
But the major difference between exports and domestic sales was that Chinese customers were mainly buying CHEERS products in CHEERS retail outlets, so branding was critical in the PRC market.
“Our export sales to major retailers abroad are basically selling ‘products’, but as for our domestic sales via our CHEERS and ENLANDA stores, we are actually selling a ‘brand’.
“Therefore we need to drum up the recliner sofa market in the PRC. We need to bring home the message about the recliner market as our main revenue stream going forward will come from opening new retail stores in the PRC,” Mr. Lee said.
He said there was “tremendous growth potential” for reclining furniture in China, and one major key was better broadcasting and promotion of the benefits of the products over traditional stationary or wooden varieties.
“A lot of Chinese people still don’t understand or appreciate the joys of reclining sofas, so we need more promotions."
And because domestic sales involved no third-party retailers but were sold directly via Man Wah’s own stores, there was the substantial benefit of higher selling prices to boast of ... yet another reason why the company was increasingly bullish on PRC sales.
“While we do have a uniform pricing strategy in the PRC, we do have higher gross sales margins domestically because we retail directly here. So we naturally want to boost our PRC business and we are targeting putting more resources into the mainland.”
But if branding was so important at home, even with a No.1 domestic market share, how did Man Wah plan to make its brand even more recognizable in the 1.3 bln-consumer strong PRC market?
“Despite having the top PRC market share, we have found through a thorough survey that 78% of respondents have heard of the CHEERS brand of sofas. Therefore, we are committed to increasing investment in brand building and advertising. This included increasing our exposure via celebrity spokespersons and maintaining Oglivy & Mather as our advertising firm.”
Man Wah’s in-house brand building staff has since increased to 50 persons with the goal of enhancing image design and development.
“Traditionally we have advertised solely via exhibitions and in-store promotions. But we have since signed up well-known actor Sun Honglei and the Chinese badminton team including Olympic gold medalist Lin Dan as spokespersons. In fact, we will soon increase our A&P budget to 1.0% of total revenue, up from a much, much lower level only recently,” Mr. Lee said.
He added that Man Wah was not overlooking the potential of the mass media to promote its brand image, and has advertised more and more on CCTV1, newspapers and magazines.
“We believe that the PRC, as well as all of Southeast Asia, has huge potential. But we need to first boost understanding of reclining sofas and their benefits and leisure culture. We think consumers, after learning more, will increasingly shift from stationary to reclining furniture with additional promotions and publicity.”
See also:
MAN WAH: China's 300 Bln Yuan High-Speed Rails Offer 'Moving Ad Platform'
MAN WAH: High-speed trains driving sofa maker's orders
MAN WAH'S FY10 Profit Soars 171% To 617 Mln Hkd
Man Wah is currently trading at 9.38 hkd with a 52-wk range of 5.95-10.26 and a P/E of 11.0x.
