{I-bank focus}Robust China sales hold key to Man Wah (01999)

    Citi Research anticipates Man Wah Holdings' (01999) 1H FY2020 earnings to fall with growth flat on year-on-year despite escalated tariffs impact for the US segment.
  The research house said Man Wah's US revenue was down 20% during 5-month FY2020 as the US customers switched into suppliers (US/ASEAN) to avert the 25% tariff on reclining sofa products.
  Nonetheless, this has been more than offset by (1) stronger China sales; (2) RMB devaluation by 3% in 1H FY2020, and (3) lower leather material costs.
  Per FY2019 disclosures, China/US/EU & Other constituted 85%/10%/5% of earnings split versus 49%/37%/11%/3% of revenue split. Thus, China far outweighs the US even though
China furniture market has been flat or even a bit down on subdued property transactions.
  Citi believes Man Wah's revenue growth in China should exceed 20% in RMB terms during 1H FY2020 given (1) encouraging response to new slim design reclining sofas at a comparable price point of ordinary sofas from rivals; (2) robust online sales (20% of China sales) with 50% growth during 1H FY2020, and (3) Net 250 store addition to total 2,864 in FY2020.
  Citi maintained its "buy" rating on Man Wah, with a target price of HK$6.2.