CICC: Maintaining Minhua Holdings' (01999) “Outperform the Industry” rating target price of HK$6.5

The Zhitong Finance App learned that CICC released a research report stating that Minhua Holdings (01999) acquired US upholstered furniture manufacturer Gainline through its US subsidiary at a total cost of about 58.7 million US dollars and acquired two major brands and production bases, Southern Motion and Fusion Furniture. The acquisition will significantly expand Minhua's distribution network and local manufacturing capabilities in the North American market. It is expected to increase market share through supply chain collaboration and enhance resilience to changes in the trade environment. The outperforming industry rating was maintained, and the target price remained unchanged at HK$6.5.

CICC's main views are as follows:

The company's recent situation

The company announced on December 18 that its indirect wholly-owned subsidiary Minhua Made in America acquired 100% of Gainline Recline Intermediate Corp.'s shares at a cost of 32 million US dollars on December 18, 2025. At the same time, the company is required to accept the target group's outstanding bank debt of 27.939 million US dollars. After settlement, Minhua Hong Kong Trading has granted an interest-free loan of 266.703 million US dollars to the acquisition target group, with the balance of 1,323,600 US dollars paid by the acquisition target group in its own cash. The total amount involved in this acquisition is approximately $58.7 million.

The acquisition target group is mainly engaged in the manufacture and sale of upholstered furniture in the US

The acquisition target group owns two major brands: Southern Motion (founded in 1996, mainly engaged in functional sofas) and Fusion Furniture (founded in 2009, mainly engaged in fixed furniture). Target Group has eight production facilities in northern Mississippi, with a total area of over 2 million square feet. According to financial data, revenue for the fiscal year ending June 28, 2025 was US$188 million, with a net loss of US$9.6867 million.

This acquisition will bring good synergy effects to the company

The target group covers the distribution network of 1000+ furniture retailers and two major established brands. The bank believes it is expected to rapidly increase the company's market share in North America. In terms of cost optimization, the company has obvious advantages in raw material procurement costs and automation levels, and can achieve deep supply chain collaboration with target groups. Furthermore, the acquisition directly expanded the company's production layout to the US, which the bank believes will help to better meet the challenges and opportunities brought about by changes in the international trade environment.

Optimistic about this acquisition to strengthen the company's local competitiveness in the US market

The bank believes that this acquisition strengthens the company's local competitiveness in the US market. By building a complete manufacturing and supply chain system in the US, the Group will improve market response speed and customer service capabilities, effectively avoid trade barriers and logistics risks, and provide a strategic fulcrum for integrating upstream and downstream resources and deepening the influence of North American brands.

Profit forecasting and valuation

Maintain the FY2026/FY2027 profit forecast of HK$21.24/2,244 billion unchanged. The current stock price corresponds to 8/8 times P/E for FY2026/FY2027. The outperforming industry rating and target price of HK$6.5 remain unchanged, corresponding to FY2026/FY2027 12/11 times P/E, with 47.7% upside compared to the current stock price.

Risk warning: The price of raw materials fluctuates greatly, and overseas trade risks.