Event: on November 15, Man Wah released the FY2023 interim performance report. The company's FY2023 had revenue of HK $9.533 billion in the first half, down 8.0 per cent from a year earlier, while net profit at home was HK $1.092 billion, up 10.5 per cent from a year earlier. Out of rigorous consideration, the company set aside HK $84.53 million in management fees in advance for Raffel patent litigation in the United States. after the restoration, the company deducted HK $1.13 billion in non-parent net profit, an increase of 14.4% over the same period last year. The company plans to pay an interim dividend of HK $0.15 per share, with a dividend ratio of up to 54.0%.
Diversified development of domestic channels and resilience of overseas markets
From a regional point of view, the income of FY2023 in China, North America, Europe and other overseas markets in the first half of the year was HK $57.13,25.64 and 670 million respectively, up-10.72%, 0.07% and 2.06% over the same period last year, accounting for 59.93%, 26.90% and 7.03%, respectively. FY2023's gross profit margin for the first half of the year in China, North America, Europe and other overseas markets was 39.9%, 41.8% and 21.3% respectively, up by 4.2pct, 0.7pct and-2.9pct over the same period last year. Among them: 1) Chinese market: as of September 30, 22, the company had a net increase of 262 to 6230 stores compared with the end of FY2022 (excluding style and Pliny); at the same time, the company continued to develop Tmall, JD.com platforms, and through live e-commerce to open up new traffic channels and enhance brand influence. 2) North American market: the company continues to improve the global production capacity layout of export business, and breaks through the high-end market with North American independent brand MW HOME; 3) Europe and other overseas markets: the company gradually improves the layout of product lines to meet the requirements of newly expanded customers with diversified product styles.
Sofa categories are relatively stable, and there is still room for domestic penetration of functional sofas. In the first half of the year, the company's FY2023 sofas and accessories, other products and Home Group business achieved income of 67.08,22.40 and 279 million yuan respectively, up-4.79%,-12.50% and-39.89% over the same period last year. Excluding the Home Group business, FY2023 sold about 7.54 million sofa products in the first half of the year, down 8.05% from the same period last year, of which the number of sofa sets sold in China decreased by 1.5% to 419000 sets, and the number of sofa sets sold in exports decreased by 15.1% to 334000 sets compared with the same period last year. According to Euromonitor International, China's functional sofa market penetration is expected to be 6.9% in 2022, which still has a lot of room for improvement compared with 48.8% in the United States. The company continues to promote the "five-in-one" layout of channels, products, brands, dealers and production capacity, which is expected to further enhance market share.
Profitability has improved significantly, and continued high dividends have been paid back to shareholders.
In terms of profitability, the company's overall gross profit margin in the first half of FY2023 was 38.8%, an increase of 2.6pct over the same period last year, which is expected to be mainly related to the high decline in raw material costs and sea freight charges, as well as the improvement of internal management quality and efficiency. During the reporting period, the average unit cost of the company's main raw materials leather, steel, wood plywood, chemicals and packaging paper increased by-0.5%,-8.5%, 21.2%,-15.8% and 0.9% respectively over the same period last year. In terms of net interest rate, FY2023's net interest rate in the first half of the year increased by 2.1pct to 11.7% compared with the same period last year.
In terms of period expenses, FY2023's share of sales and distribution expenses increased by 0.1pct to 19.8% year-on-year in the first half of the year, while administrative expenses increased by 0.9pct to 6.1% year-on-year.
The company continues to pay a high proportion of dividends to shareholders. In the first half of the year, FY2023 declared a dividend of HK15.0 cents per share, with a total dividend of about HK $590 million and a dividend ratio of 54.0 per cent.
Investment advice:
Man Wah as a functional sofa industry leader and software home leader, solid fundamentals, high dividends continue to return to shareholders, and the company's fine management capacity steadily improved, domestic and export gradually recovered, we continue to be optimistic about the company's long-term investment value potential. We expect the company's FY2023-FY2025 main business income to be HK $217.48, HK $262.85 and HK $30.9 billion, up 1.17%, 20.86% and 17.56% year-on-year, and net profit of HK $25.42,31.08 and HK $3.667 billion, up 13.10%, 22.27% and 17.99%, corresponding to PE of 10.6x, 8.7x and 7.3x, maintaining the Buy-An investment rating.
Risk hints: the impact of epidemic fluctuations exceeds the expected risk; domestic development is less than expected risk; raw material prices, exchange rate fluctuations risk.