In an investor conference in Hong Kong this week sponsored by Aries Consulting, Man Wah’s Finance Director Mr. Francis Lee said that hitching its wagon to China’s 300 bln yuan planned investment in High Speed Railway (HSR) is is a tremendous growth driver for Man Wah going forward.
The arrangement is also a ringing endorsement of the quality brand reputation of the CHEERS name, as the reclining furniture will be whizzing across the Chinese landscape from the comfort and luxury of first class cabins.
“The CRH furniture agreement is the first of its kind for us. We believe the supply deal for next year is just the beginning and we will get new and extended contracts down the line,” Mr. Lee said.
And the location of the furniture in CRH’s first class cabins carries with it a cachet that speaks volumes about the reputation of Man Wah.
“This will allow us to prominently display and showcase our proprietary CHEERS furniture brand name on the trains. This is a strong testament to CHEERS market leading position for high quality furniture products in the PRC.”
“We will be putting our brand label on every reclining sofa chair in the system’s first class cabins. This is certainly a vote of confidence in our quality by the railway authority. In effect, it will be a moving advertising platform for us with thousands upon thousands of different passengers sitting on our clearly labeled products day in and day out.
“We believe we can firmly leverage on that position for advertising and promotional purposes and it will be a great help in our non-budgeted marketing. As we are number one in China in the reclining furniture sector, many people are familiar with our CHEERS brand name, but not necessarily with our Man Wah company name,” he said.
Margins on sales of reclining sofas and chairs for first class coaches in China’s rapidly expanding High-Speed Rail coaches are higher than either export sales or domestic retail sales for a variety of reasons, all the more reason for investors to pay close attention to potential supply contract extensions or expansions to CRH going forward.
“We will enjoy higher than average group margins for the CRH sales primarily because the inaugural 152.7 mln yuan contract was realized via direct negotiations and not through public tender. Therefore we can use markups where necessary to cover price fluctuations, especially for maintenance and replacement costs,” Mr. Lee said.
In fact, not only the reclining furniture supply contracts to CRH’s first class coaches has been awarded to Man Wah, but the Hong Kong-listed firm was also commissioned to supply tables and chairs to the connecting cabins.
“Although the supply contract is for 2011, not only to we expect more as the CRH system gets positive feedback and continues to expand, but also we consider it a source of semi-recurrent income because we also provide after-sales service. These coaches will carry lots and lots of people, so there will be considerable wear and tear. Our repair and replacement service is therefore a source of recurrent income for us.”
He added that the CRH first class coach furniture contract will contribute a “sizable portion” of Financial Year 2011 revenue.
“However, our main revenue stream will still be opening new stores in the PRC.”
A quick look at the company’s numbers tells the story.
Even though 2010 export revenue is expected to grow around 45% this year to 2.1 bln hkd, sales of sofa and bedding products via its growing network of CHEERS and ENLANDA retail stores in the PRC are forecast to grow much faster this year to over 870 mln hkd.
See also: MAN WAH: High-Speed Trains Driving Sofa Maker's Orders
