CICC has released a research report maintaining its FY2026/FY2027 profit forecasts for Man Wah Holdings (01999) at HK$2.124 billion and HK$2.248 billion, respectively. The current stock price implies a FY2026/FY2027 P/E ratio of 9x/9x. The firm reiterates its "Outperform" rating and target price of HK$6.5, corresponding to a FY2026/FY2027 P/E of 12x/11x, representing a 27% upside potential from the current price.

Key highlights from CICC's report include:

**1HFY26 Results in Line with Expectations** Revenue for 1HFY26 reached HK$8.045 billion, down 3.1% YoY, while net profit rose 0.6% YoY to HK$1.146 billion, meeting expectations. The company plans to distribute a dividend of HK$0.15 per share, with a payout ratio of 50.8%.

**Domestic Online Sales Shine; Overseas Markets Remain Resilient Amid Tariff Pressures** 1) **Domestic Sales**: Affected by sluggish consumer demand, domestic revenue fell 6% YoY to HK$4.675 billion. Excluding smart components, revenue declined 6.5% YoY to HK$4.203 billion. Sofa and mattress revenues dropped 6.1% and 7.4% YoY to HK$3.084 billion and HK$1.119 billion, respectively. Offline/online sales decreased 12.3% and grew 13.6% YoY to HK$3.059 billion and HK$1.144 billion, respectively. Sofa sales volume rose 0.1% YoY, while ASP fell 6.2%, mainly due to a 4.8ppt increase in online sales contribution.

2) **Overseas Sales**: North America, Europe, and other overseas markets saw revenue growth of 0.3%, 4.3%, and 2.2% YoY to HK$2.161 billion, HK$765 million, and HK$380 million, respectively. CICC expects the company to sustain steady overseas growth, leveraging its global supply chain, strong client relationships, and product competitiveness despite tariff uncertainties.

**Improved Gross and Net Margins** Operational efficiency and cost control drove 1HFY26 gross margin up 0.9ppt YoY to 40.4%. China/overseas/HG gross margins rose 0.8ppt, 1.1ppt, and 0.3ppt YoY to 41.0%, 39.3%, and 31.6%, respectively. Sales/management/finance expense ratios increased 0.9ppt, 0.77ppt, and decreased 0.38ppt YoY to 19.1%, 4.5%, and 0.5%, respectively. Net margin improved 0.5ppt YoY to 14.2%.

**Store Optimization and Clear Domestic-Overseas Strategy** 1) **Domestic**: Net store count fell by 327 to 7,040 in 1HFY26 due to optimization efforts, with store revenue down 12.3% YoY to HK$3.059 billion. CICC believes further store adjustments will enhance operational efficiency. Online, the company is boosting marketing and product diversification to drive sales.

2) **Strategy**: Domestically, Man Wah is strengthening branding across channels, while overseas, it is expanding through global production synergy and participation in international exhibitions. CICC remains positive on the company’s strategic execution to solidify its market position.

**Risks**: Volatile raw material prices, weaker-than-expected property market conditions, and overseas trade risks.