INTERVIEW-Sofa maker Man Wah eyes China home growth

(Adds details, background)

By Chua Baizhen

SINGAPORE, Sept 12 (Reuters) - Hong Kong-based sofa maker Man Wah Holdings MANW.SI 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 2-3 years.

The Singapore-listed firm will focus on its domestic Chinese market rather than export sales because of the strength of the yuan against the U.S. dollar, its managing director said.

"We will depend on China to bring our company forward in the next two to three years, to conduct more of our business in the yuan," Wong Man Li told Reuters on Wednesday in a telephone interview conducted in Mandarin. Man Wah, valued at $90 million, earns almost 40 percent of its revenue in North America, 25 percent in Europe, 13 percent in China and 11 percent in Hong Kong.

Wong said China's move in July to cut its export tax rebate to 11 percent from 13 percent for furniture makers meant it made more sense to focus on the domestic market.

In June, the company had said the rebate cut -- aimed at reducing China's trade surplus -- would have "negative but not severe impact" on its financial year 2008 profit.

"Our conservative estimate for growth in sales from China is at least 50 percent (for FY 2008)," Wong said.

The firm sold about HK$111 million ($14 million) of its mid- to high-end sofas in China in the year to end-March, up 52 percent from a year earlier.

NEW STORES

Wong said Man Wah was expanding its China retail network to feed an ongoing property fever, with new stores opening daily.

At end-March, the company had 154 retail stores in China selling its "Cheers" brand of sofas.

Despite government measures to dampen property investment, residential property prices in China rose 8.2 percent last month from a year ago.

Wong said Chinese were only just beginning to buy expensive furniture for their new homes, such as Man Wah's US$700-US$800 sofas.

Man Wah earned HK$90.7 million in net profit in the year to March, up 9 percent from the previous period.

While business is expected to grow more moderately in the United States, Wong expects the subprime mortgage crisis to spur furniture retailers and wholesalers there to look beyond their borders for cheaper alternatives.

"The problems in the U.S. have created a good opportunity for us to grab market share from our competitors there," he said.

Wong, who founded Man Wah in 1992, said the company competes with Italian home furniture maker Natuzzi SpA (NTZ.N), La-Z-Boy Inc (LZB.N) in the U.S. and numerous private firms in China.

Natuzzi and La-Z-Boy have stock market values of about $400 million and $500 million respectively.

((Editing by Ian Geoghegan; baizhen.chua@reuters.com; Reuters Messaging: baizhen.chua.reuters.com@reuters.net; +65 64035658))

($1=7.786 Hong Kong Dollar)

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