Man Wah (1999 HK): Issues to consider
Background
Man Wah, is much loved by the buy-side. Over the last ten years, revenue is up nearly ten times and profits nearly a hundredfold. Moreover, its products, sofas and chairs are easy to understand and there is plenty of external sales data to track. However at the Sohn conference in Hong Kong, Carson Block announced that it was his top short sell idea in Asia. We have now taken a look at the company and, while we are not sure that it is fatally flawed, we are struggling to understand the numbers. In our report, we go into the various issues and explain why we are perturbed.
Issues to consider
Please contact us, if you would like to become a client and get a full copy of the report.
Man Wah, is much loved by the buy-side. Over the last ten years, revenue is up nearly ten times and profits nearly a hundredfold. Moreover, its products, sofas and chairs are easy to understand and there is plenty of external sales data to track. However at the Sohn conference in Hong Kong, Carson Block announced that it was his top short sell idea in Asia. We have now taken a look at the company and, while we are not sure that it is fatally flawed, we are struggling to understand the numbers. In our report, we go into the various issues and explain why we are perturbed.
Issues to consider
- If most of the export profits are being booked through Macau, why was so little of the company’s cash offshore prior to 2016?
- Why did the Macau tax benefit jump so much in 2016 over 2015 when profits were relatively unchanged?
- How much longer do they expect the Macau tax arbitrage to last given that Macau has now signed up to BEPS?
- Why do they need to keep changing their revenue segmentation and breakdown?
- Apparently the reason for their recent profit growth is that margins have expanded thanks to falling leather costs.
- We ran three scenarios. Flat US margins, Chinese margins rise to 61%
- We match growth to changes in the report Macau tax benefit, the US ends up with 33% margins and Chinese margins fall
- A modest match of US profits to the Macau tax benefit, US margins rise to 25% and Chinese to 30%
- Why does the product cost breakdown not track over time?
- Why does the company spend so much time and effort trading wealth management products when they are supposed to be making far higher returns making sofas?
Please contact us, if you would like to become a client and get a full copy of the report.
Important
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.
This note is written with the sole purpose of highlighting some issues we think are important.
It is not a recommendation to BUY or SELL any of the securities mentioned and should not be taken as such.
Readers should form their own opinions about the company and seek appropriate advice.
Please read the Bucephalus disclaimer.