Investment Highlights:
A leader in functional sofas, ranking first globally in sales. Founded in 1992, the company has been focusing on functional sofas, bedding, and smart home products ever since. Its products are sold in numerous countries including China, North America, and Europe. It is the world’s top-selling functional sofa manufacturer and has been named among the top 10 furniture companies in Europe and the U.S. After years of development, the company has successfully transformed from a traditional export OEM manufacturer into a business model that equally emphasizes both export manufacturing and domestic sales under its own brand. In FY26H1, the revenue ratio between domestic and overseas sales was approximately 59% to 41%. In FY2025, the company achieved revenues of HK$16.9 billion, down 8.2% year-on-year, and net profit of HK$2.06 billion, down 10.4% year-on-year. In FY26H1, revenues decreased by 3.1% year-on-year, while net profit increased by 0.6% year-on-year.
Over the past three years, the company has adjusted its domestic and overseas sales strategies, leading to marginal improvements at the business level. Against the backdrop of a downturn in China’s home furnishings industry in recent years, coupled with shifting overseas demand and a changing competitive landscape, the company’s CAGR for domestic and overseas sales revenue from FY2022 to FY2025 was -9% and -6%, respectively. In the first half of FY26, domestic and overseas sales revenue declined by -6% and rose by +1% year-on-year, respectively. Although offline channels are still undergoing a period of adjustment, we’ve observed several positive changes at the business level: 1) Domestic online sales have rebounded—first-half FY26 domestic e-commerce sales increased by 13.6% year-on-year, reversing the downward trend that had persisted since the second half of FY24; the share of e-commerce in total domestic sales has risen back to 27%; 2) For overseas sales, the company plans to acquire Gainline Recline Intermediate Corp., a U.S.-based furniture manufacturer, thereby enhancing its business portfolio. The target company, headquartered in Mississippi, USA, operates eight production facilities and primarily manages two soft-furniture brands—Southern Motion and Fusion Furniture—covering a distribution network of over 1,000 furniture retailers. This acquisition is expected to create synergies and complementarities with Minhua in terms of production capacity, branding, and channel distribution.
In recent years, the company’s profitability has proven more resilient than market expectations, with gross margins rising against the broader market trend. Early on, the company achieved vertical integration across the industry chain, enabling it to independently research and manufacture core components for functional sofas and maintain a leading cost advantage. In FY25, the average selling price per sofa unit declined by 19% compared to FY22, yet the gross margin for sofas rose by 3.6 percentage points over the same period. In FY26 H1, the average sofa price fell by 4% year-on-year, while the gross margin increased by 1 percentage point year-on-year. Thanks to the company’s strong cost-control capabilities, its profitability has remained relatively stable in recent years and has outperformed market expectations. In FY25, the net profit margin stood at 12.2%, remaining at a relatively high level over the past five years—only slightly lower than the 12.5% recorded in FY24. In FY26 H1, the net profit margin reached 14.2%, up 0.5 percentage points year-on-year.
Earnings Forecast and Investment Recommendation: As the leading player in functional sofas, the company boasts strong manufacturing advantages. Domestically, its offline sales are stabilizing after hitting a bottom, while online sales are rebounding. Overseas, the company is further refining its business layout through mergers and acquisitions. In recent years, the dividend payout ratio has remained around 50%. As of January 22, 2026, the current market capitalization corresponds to a dividend yield of approximately 5.7% for FY26E. Excluding the impact of potential acquisitions for now, we forecast that the company’s net profit attributable to shareholders for FY2026-FY2028 will be HK$2.07 billion, HK$2.12 billion, and HK$2.21 billion, representing year-on-year growth rates of +0.2%, +2.5%, and +4.1%, respectively. Currently, the stock price corresponds to P/E ratios of 9x and 8x for FY26 and FY27 fiscal years, respectively—lower than the average valuation level of comparable companies. We initiate coverage with a “Buy” rating.
Risk Warning
Macro-environmental risks at home and abroad, risks arising from intensifying market competition, and risks associated with changes in foreign trade policies.
