MAN WAH HLDGS (01999) saw a slight year-on-year decline in revenue for FY26H1 but improved gross margin through effective cost control. The company's domestic sales decline narrowed significantly, with online channels performing exceptionally well (+13.6%), while overseas markets demonstrated resilience, particularly in North America, which achieved marginal growth despite trade barriers.

**Financial Performance** For the six months ended September 30, 2025, MAN WAH HLDGS reported revenue of HK$8.045 billion, down 3.1% year-on-year. However, gross margin rose by 0.9 percentage points to 40.4% due to cost optimization, with net profit attributable to shareholders increasing slightly by 0.6% to HK$1.146 billion. Non-recurring losses narrowed significantly to HK$33.48 million, primarily from fair value losses on investment properties, compared to HK$109 million in the same period last year.

**Domestic Sales Recovery** Revenue from China (excluding real estate and smart components) reached HK$4.203 billion, down 6.5% year-on-year, but the decline was notably smaller than in FY25H2. Online sales surged 13.6% to HK$1.144 billion, exceeding expectations, while offline revenue fell 12.3% to HK$3.059 billion. The company continued optimizing its offline network, reducing total stores by 327 to 7,040 by the end of FY26H1.

By product category, sofa sales remained flat (+0.1% in volume), with average selling prices slightly lower due to higher online sales contribution. Mattress revenue declined 7.4% to HK$1.119 billion, impacted by consumer downgrading trends in China.

**Overseas Resilience** North American revenue edged up 0.3% to HK$2.161 billion despite trade barriers, while Europe and other markets grew 4.3% to HK$765 million. Home Group business revenue rose 2.2% to HK$380 million, supported by stronger European demand.

**Improved Profitability** The overall gross margin improvement to 40.4% (+0.9 ppts year-on-year) was driven by lower raw material costs, including declines in leather (-10.4%), chemicals (-9.8%), and steel (-6.8%). However, U.S. tariffs on Vietnam increased export costs, with tariff expenses rising from HK$6.65 million to HK$78.83 million, now accounting for 1.0% of revenue.

**Investment Outlook** As the leader in functional sofas, MAN WAH HLDGS is well-positioned to benefit from rising penetration in smart home trends. While domestic sales remain pressured, channel reforms are expected to support gradual recovery. Earnings forecasts were slightly adjusted to HK$2.19 billion, HK$2.32 billion, and HK$2.43 billion for FY26-FY28 (previously HK$2.29 billion, HK$2.57 billion, and HK$2.82 billion), with corresponding P/E ratios of 7.8x, 7.4x, and 7.0x. The "Buy" rating is maintained.

**Risks** include weaker-than-expected demand, intensified competition, raw material price volatility, and delays in capacity expansion.