Key Takeaways:
Man Wah Holdings shares fell nearly 4 percent after its HK$1.81 billion annual profit missed estimates and Citigroup cut its price target.
"Management adopted a cautious view on the gross margin outlook for FY2027, mainly due to rising raw material costs," Citi said in a research report after an analyst briefing.
The furniture maker’s fiscal year 2026 net profit was 15 percent below market consensus and 12 percent short of the bank’s forecast. In response, Citi lowered its earnings forecasts for fiscal 2027 and 2028 by 21 to 27 percent and cut its price target on the stock to HK$5.6 from HK$6.5, while maintaining a Buy rating.
The stock dropped to as low as HK$3.76, its weakest since late April 2025, before closing at HK$3.82. The earnings miss and margin warnings may weigh on the shares, though Citi notes the valuation is attractive at a 6 percent dividend yield and a price-to-book ratio of about one time.
The company’s management flagged pressure on gross margins for the first half of fiscal 2027, pointing to a surge in oil prices that has driven up the cost of chemicals and other raw materials since March. Raw materials make up a significant portion of costs, with leather accounting for about 20 percent and metals for 20 to 25 percent.
For the full year ending in March, Man Wah’s net profit was down 12.1 percent from the prior year, according to a company announcement. The company declared a final dividend of HK$0.09 per share. Trailing twelve-month revenue stood at approximately HK$16.4 billion with a net margin of 11 percent, down from 12.2 percent a year earlier.
Despite the near-term headwinds, Citi’s new HK$5.6 target still implies significant upside from the current price. Other analysts see an average target of HK$5.40. The bank believes the current valuation of around nine times forward earnings is attractive, below the Hong Kong consumer durables industry average of 9.5 times.
The profit miss highlights the impact of commodity prices on Man Wah's margins, a key concern for the year ahead. Investors will watch for the company's ability to manage costs in the first half of fiscal 2027, with the next earnings report being the key catalyst.
This article is for informational purposes only and does not constitute investment advice.
