Furniture maker Man Wah Holdings is confident of double-digit growth in its exports to the United States and Europe, despite a weak American economy and the euro-zone debt crisis.
While rising costs are forcing many factories to leave the mainland, the Hong Kong-listed company plans to increase its mainland manufacturing workforce to support its booming exports.
This year, the company has far outperformed the Hang Seng Index, with its share price jumping from HK$2.68 on August 15 to HK$6.59 on December 27. The HSI, meantime, is up 22.4 per cent so far this year.
Man Wah's exports to Europe and the US have been growing at a more than 20 per cent annual clip, said Stephen Allen Barr, one of the company's executive directors.
For the six months ended September 30, Man Wah's exports to Europe rose 26 per cent, while sales in the US, the company's biggest market, grew 21 per cent, according to a report by securities house Sunwah Kingsway. During that period, Man Wah's revenue reached HK$2.4 billion, with 54.8 per cent from the US, 9.1 per cent from Europe, 24.9 per cent from the mainland and 1.7 per cent from Hong Kong.
"We did all our growth in the US in the last six years, when the US economy was much bleaker than today. We grew our sales during the financial meltdown and the US mortgage meltdown, despite renminbi appreciation," said Barr.
Man Wah's US sales have soared to nearly US$400 million this year from US$10 million seven years ago when it entered the market, added Barr.
Last year, the Hong Kong company ranked 10th in the US furniture market with sales of US$276.9 million, according to Furniture Today, a US trade publication. The biggest US furniture seller, Ashley Furniture, had sales of US$3.34 billion last year, while runner-up, La-Z-Boy, had US$975 million of sales.
Man Wah gained its overall share of the US furniture market by selling just one product, reclining sofas. Of the top 10, it is the youngest player with a history of seven years. The second-youngest player is 47 years old while the oldest is 125, Barr noted. North American companies dominate the list.
Man Wah managed to grow its exports last year despite a 40 per cent to 50 per cent increase in global leather prices, the biggest in living memory, Barr recalled. During the six months ended September 30, leather accounted for 33.8 per cent of Man Wah's production costs, while labour was 9 per cent.
Although wages have risen 10 per cent each year for the past three years at its mainland factories, Man Wah intends to add 1,000 workers to its existing pool of 5,000 workers next year, said Barr. "We can't sell more without adding workers."
The company has three factories in Shenzhen and Huizhou in the Pearl River Delta, and Wujiang in Jiangsu province. Next year, it may start a factory in Tianjin, Barr added.
The rapid growth of Man Wah's sales in the US and Europe can be attributed to its taking market share from domestic rivals due to the good quality and lower price of its products, said Sunwah Kingsway. "Amid global uncertainty, consumers have become more price-sensitive and Man Wah products are in the sweet spot."
"The secret of our success is doing something that is not done in China, innovation, design, doing new products, rather than copy other people's products," Barr said. "You see the same furniture in 10 Chinese factories."
He added that Man Wah's "workers in China do more workmanship than workers in US. In the US, the emphasis is on efficiency, so there is less workmanship."
Today's consumer is looking for details, he said.
Man Wah's bedding sales in Hong Kong dropped nearly 15 per cent to HK$41.4 million in the six months ended September 30, while total bedding sales fell by the same amount to HK$98.7 million. During that period, the company's total revenue grew 13 per cent to HK$2.4 billion, while net profit soared 53.6 per cent to HK$219.3 million. Its mainland China sales increased 6.8 per cent to HK$498 million.
Part of the reason for the relatively slow growth of its mainland sales is a decrease in sales related to high speed trains. In the six months ended September, sales fell to HK$14 million from HK$38 million last year, said chief financial officer Wang Guisheng.
Wang blamed the sharp drop on the slowdown in China's high-speed rail development after the high-speed train accident near Wenzhou last year. However, development is picking up and Man Wah has broadened sales from the VIP section to all seats in the trains, Wang said.