Brokers' take

Man Wah Holdings

June 23 close: S$0.27

DMG & Partners Securities, June 23

MAN Wah announced an upward revision of its production capacity, following the integration of Phases 1 and 2 of its Daya Bay Plant.

The integration of both phases (Phase 1 is a flatted factory, while Phase 2 is a five-storey facility) allows Man Wah to streamline its operations and achieve better economies of scale. Management highlighted that this has enabled it to raise its production capacity to 500,000 sofa sets in FY2009, compared with 303,000 sets as projected earlier.

This would enable Man Wah to meet the expected growing demand for its sofa sets.

As Man Wah continues to grow its export and local markets, it expects the new plant to be able to achieve a healthy utilisation rate.

While the increased production capacity bodes well for the group, we are maintaining our FY2009 earnings estimate of HK$195.9 million (S$34.3 million) for now, as we believe it would take a while for production to be ramped up and the average utilisation rate may not be very high, given that China, the US and Europe are feeling the pressures of higher oil and food prices.

Maintain 'buy' for a TP of S$0.46 or FY2009 PE of nine times.

BUY