Man Wah Holdings Limited (HKG:1999) is solidifying its leading position in China’s rapidly growing domestic market as it builds its brand, earns a higher margin and reinvests into its business to grow capacity, says Eric Brock, Portfolio Manager at Clough Capital Partners, L.P.
“Man Wah is the ‘La-Z-Boy (LZB) of China,’ and it started out as an export business. They make very high-quality leather furniture, reclining sofas and chairs. Again, this is sitting right in the middle of this discretionary spending boom we see in China where spending on durable goods like furniture is rapidly increasing,” Brock said.
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Man Wah has up to five times of market share with its closest competitor, and is seeing large competitive advantages with its ability to advertise nationally and build its brand, Brock says.
“They have better access to distribution in terms of retail sales in China, and then as a result they earn higher margin. And they are able to reinvest in the business to grow capacity and continue to keep that lead, which is a very rapidly growing domestic market,” Brock said.