Sofa maker seeks Hong Kong IPO after delisting from SGX

Man Wah, which was listed in Singapore until last year and generates almost half of its earnings from the US, is looking to China for its next growth driver.

After Zhongsheng's quickly resumed initial public offering earlier this week, another retail player is looking to take advantage of the recent market rally as well as the growing shopping spree in China. Man Wah Holdings, a Hong Kong-based sofa maker and retailer, is seeking to raise as much as HK$3.4 billion ($438 million) from a Hong Kong IPO that started bookbuilding yesterday.

This is not the first public share sale for Man Wah -- the company did an IPO in Singapore in June 2005 and remained listed on the Singapore Exchange for over four years. Man Wah delisted in September 2009, along with a series of other so called S-chips (Singapore-listed Chinese companies) that also withdrew their shares, citing low liquidity.

Man Wah is offering 289.3 million shares, or 30% of its enlarged share capital, at a price between HK$8.50 and HK$11.80 a piece.

The price range translates into a price-to-earnings ratio of 10.1 times to 14 times, based on 2010 projected earnings. By comparison, Hong Kong-listed Samson Holdings, which produces and sells wholesale furniture to the US and the UK, is currently trading at eight times forecast earnings for 2010.

The offering comprises 241.3 million new shares, representing 83.4% of the total, and 48 million shares to be sold by existing shareholders. If a 15% greenshoe option is exercised in full, the deal size could reach up to $503 million, according to a term sheet.

The company makes recliner sofas, mattresses and bedding accessories in mainland China and ships them abroad. North America is its largest market, which means the company is likely to be affected by the growing value of the Chinese currency. Man Wah could also be an easy target for complaints about export dumping in the US, where jobless rates have topped 10%.

However, China is the fastest growing market for Man Wah, contributing nearly 30% of revenues in the fiscal year ended in March 2009, according to a stock exchange filing. The company is banking on China's property boom and the rising spending power of its 1.3 billion citizens to drive its growth over the next three years.

The Hong Kong retail portion of the deal, which accounts for 10%, will be opened between March 18 and March 23. The company plans to price the deal on March 24, with the trading debut scheduled for March 30. Macquarie is the sole global coordinator and bookrunner for the deal.

Man Wah plans to use the proceeds raised from the deal to construct new sofa production facilities in Wujiang and Jiangsu and to expand its retail network on the mainland to about 1,000 specialty stores under the brand names "Cheers" and "Enlanda".

US and Europe are Man Wah's key export markets, contributing roughly 50% and 13% of the company's total earnings. Some 30% of the income is generated from sales in China. China was the fastest growing market in the 2009 fiscal year with revenues rising 45.2% and gross profit increasing 56.7%, according to information filed with the stock exchange.

Man Wah's revenues increased to HK$1.96 billion ($252.9 million) in fiscal 2009 from HK$884.9 million in 2007, while net profit grew to HK$228 million from HK$96.9 million in the same period. 

Chinese auto dealer Zhongsheng Group Holdings postponed its IPO after the pre-marketing ended on March 2, citing market conditions, although sources said the decision was also due to a disagreement about valuations. The deal was relaunched on Wednesday this week at a reduced size that could see the company raise up to $473 million. BOC International, Morgan Stanley and UBS are arranging the deal.

¬ Haymarket Media Limited. All rights reserved.
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