WORLD Houseware (Holdings) is hardly a big name among share investors. But it is grabbing increasing attention from fund managers who pay attention to fundamentals. The business strategy of the plastic and fabric household goods maker is to increase profit margins by vertical integration. ''Every step up the production process creates extra space for making profit,'' said chairman and managing director Lee Tat-hing. The group now operates on a profit margin of slightly more than 11 per cent, which it intends to raise to more than 15 per cent next year. It makes two kinds of houseware: plastic products such as PVC table-cloths, vinyl place-mats, shower curtains and coasters; and fabric goods such as fabric pot holders and oven mittens. Brokerage GK Goh gives the group a thumbs-up: ''Although the products made by the group are basic, boring, consumer commodities, the group is at an exciting stage of fast growth.'' Fabric goods account for 40 per cent of the company business, and plastic goods 60 per cent. It makes about 90 per cent of the goods it sells. All the products are for export. ''Although our products are not popular with Asians, they are daily necessities in Europe and America,'' said Mr Lee. Its main production base is in Shenzhen. In its vertical integration campaign, the company has reached the stage of making raw materials. As the US has imposed quotas on fabric imports, the company does not put as much emphasis on fabric goods as on plastic goods. It started making raw PVC sheeting last month. Its plant in Shenzhen now operates two PVC production lines, with two more coming soon. Two more are expected to be added in the third quarter of next year. Mr Lee said the plant had space for eight production lines. Each production line takes an investment of about $20 million on machinery and another $25 million as a contribution to the cost of building the factory, according to Mr Lee. Analysts say the self-supply of raw materials will reduce costs. ''Savings arising from each sheeting line are estimated to be $14 million to $15 million per annum,'' said a recent report on the company by GK Goh. ''Savings are expected to be about $60 million per year from PVC sheet production, assuming all four lines will be in production for a full year in financial year 1995 [the year ending March 31, 1995],'' said GK Goh. Transport costs are also expected to be reduced. ''We used to have to buy PVC from suppliers in places like Taiwan, Japan, South Korea. Now we can save the transport fee,'' said Mr Lee. ''Even the transport of a container from Hong Kong to China by land costs as much as $3,500, while another $1,500 has to be paid for lifting the container [on to and off trucks],'' he added. Some of the resins needed to make PVC are bought from the mainland, with the rest imported from Malaysia and Singapore. As the amount of resin in one container is enough to make three containers of PVC, Mr Lee says making its own plastic will cut transport costs for the company. GK Goh estimates that the company could save 18 per cent on raw material transport costs. Part of its PVC output will also be sold to other manufacturers. The company thinks constantly about cost-cutting, according to Mr Lee. The roof of the factory for the PVC sheet production lines was built by workers of the company because that was cheaper than hiring contractors. Mr Lee said the company was even considering diversifying into the production of resins to cut costs further. Meanwhile, it will start making rigid plastic goods including water pipes, floor tiles and vinyl kitchen and bathroom doors next September. ''We did research on the local market for plastic water pipes. Most of them are imported from countries like Taiwan, Korea and Singapore,'' said Mr Lee. ''But the freight can pose a very big problem for costs. If we make it in China to capitalise on the lower transport costs, we will go a long way,'' he added. World Houseware will initially run four production lines whose machines cost $30 million. Another $20 million will be spent on the building of factories to house the operation. Investment in the rigid plastic product lines will be drawn from the $147.25 million placement made last month. ''We expect the new production to bring us profit for the year 1994-95,'' said Mr Lee. GK Goh says the additional investment in making rigid plastic products will only be in moulding machines, but the manufacture of plastic pipes is more lucrative than the products the company is making now. The company will aim the rigid plastic products at the Hong Kong market. Thirty production lines would be needed to satisfy the demand for the Hong Kong water pipe market alone, said Mr Lee. ''There is huge room for development of this kind of production,'' he said. After having established itself in the territory's hard plastic products market, it would also look across the border. ''The mainland market is also very promising. Its construction industry is starting and quality water pipes are needed,'' he said. The company has working capital of $200 million after its flotation this year made $82.4 million, Mr Lee says. ''Strong earnings growth is currently derived from cost cutting, rather than sharp increases in sales,'' says the GK Goh report. The company has a PVC sheet printing technique that will save the group $2,000 to $3,000 per tonne, GK Goh says. Brokers say the group's products are recession-proof. ''The company's shower curtains, for example, typically have a retail price of only US$1.69, making them very resilient, even during periods of economic weakness overseas,'' says the GK Goh report. In an upturn, the group is also capable of making more upmarket products, which offer high profit margins, it adds. The brokerage believes the group's pricing to be extremely competitive. ''Lately, the management discovered that because of the economical pricing, consumers are keeping more than one set of place-mats, coasters and PVC tablecloths,'' it says. The US took 66 per cent of sales in the 1992 financial year. Europe accounted for 11 per cent, Canada six per cent, Australia six per cent and Asia five per cent. So the group is vulnerable to the possible withdrawal of China's Most Favoured Nation status by the US. To spread the risk, it has entered into a contract to buy a site in Malaysia, where it will build a 108,000-square-foot plant. Production is expected to start next year. After-tax profit was $9.17 million for the year to March 31, 1990, $13.1 million for the 1991 financial year, $20.33 million for 1992, and $41.4 million for 1993. Sun Hung Kai Research forecasts $76 million for 1994, $117.7 million for 1995 and $159.4 million for 1996. The company has more than 230 customers, which are mainly distributors, home fashion designers, department stores and chain stores.