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On Wednesday, BofA Securities adjusted its stance on Man Wah Holdings Limited (1999:HK) (OTC: MAWHF), downgrading the company’s stock rating from Buy to Neutral. The firm also revised the price target downward from HK$7.00 to HK$4.60, a 32% decrease. The downgrade comes amid concerns regarding Man Wah’s performance in several key areas of its business.
According to BofA Securities, the decision to lower the rating was driven by a combination of factors. Firstly, Man Wah is reportedly losing market share in the recliner sofa category within China’s domestic market. Additionally, the company’s exports to the United States, which account for approximately 25% of its revenue and are primarily shipped from Vietnam, are currently facing uncertainties in the order book and risks to margins.
The analyst at BofA Securities highlighted Man Wah’s valuation as relatively undemanding, with a price-to-earnings (P/E) ratio of 7 times for the fiscal year 2026 and a dividend yield of 7.5%. This valuation is seen as providing some protection against downside risks. However, due to the concerns in both domestic and overseas markets, BofA Securities has revised its earnings per share (EPS) estimates for fiscal years 2026 and 2027, reducing them by 8% and 11%, respectively.
The lowered price target is also attributed to a change in the target P/E multiple, which BofA Securities has adjusted to 7.5 times the estimated earnings for FY26. This represents a standard deviation below the historical mean and is a decrease from the previous target P/E multiple of 12 times for FY25-26.
The revision of Man Wah’s earnings projections and the subsequent adjustment in the price target reflect BofA Securities’ recalibrated expectations for the company’s financial performance in the coming years. The firm’s analysis indicates caution due to the identified challenges facing Man Wah in maintaining its market position and profitability.
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