Eratat Lifestyle

for those vested in eratat, i urge investors to be more patient. like what viviene says, it may be good that the book order is reduced since it will help cap the receivable growth. I will continue to hold for a few more quarters and monitor its results closely. If all receivables are collectable and all the profits are genuine, then we should start seeing the cash balances growing gradually over the next few quarters. Plus, with the PREMIUM on track, this is actually a good time for Eratat to give their Classic shop a facelift.

Just my objective analysis, no one is right or wrong. Mr market decide end of day. This will be my last post for Eratat. For Eratat to achieve 2 cents per shares earning, what kind of margin are we looking at with an order book of 380 million? I made several generous assumption for Eratat. 1) renovation subsidy has not kicked in the 1H 2012, and hence no increase in costs of whatsoever. Next, they are able to be more operational proficient, I took the lowest admin expense, distribution expenses over recorded by Eratat in the last 2 years. Tax rate however will remain at 25%. They manage a better product mix ratio of 20 % shoes and 80% apparels. Shoes gross margin improve to 30% so what must the margin of apparels improve to, such that they can generate 48 million net profits in a quarter? I shall not bored u with the mathematical steps of working backwards, but the conclusion is that they will need to have A gross margin of 49% for apparel. U decide if this is a tall order for summer series. Perhaps if they can further improve the margin of footwear, and such not required a high margin of 49% from apparels. Perhaps the ASP improve so much that cost of sales went down dramatically and made 50% margin or better attainable. Perhaps they can further streamline their production, marketing and become more productive and cut their SAO expenses. Perhaps RMB is going to strengthen. Anything can happen in the stock markets, I wish all vest shareholders all the best

Newbiestock I wish you all the best with Eratat but here are a few points you should consider. I was beginning to have doubts and the recent results and announcements solidified my fears.
1h2012’s order book of 380 million rmb represents a 26% drop from 1h2011’s order book of 517 million rmb (including Eratat  Premium Orders) Okay let’s take footwear out of the equation since they are gradually phasing that out.  Here are the stats for apparel orders and for Premium orders.
(in millions of rmb)        
         1h2011 2h2011 1h2012
Apparel 253.33 357.5 285
Premium 40 132 105.45  
Apparel orders are down significantly from 2h2011 and up only marginally from 1h2011. Part of it may be due to the stores undergoing renovation, I’ll give them that.
However, Eratat Premium stores from last season will certainly not be under renovation this season since it’s the ‘classic stores’ that they want to upgrade. Despite this, Eratat Premium orders have also fallen by more than 20% from 2h2011. Granted the 2 seasons are different but where is the growth? Also recall that 1h2011’s orders for Erarat Premium only came towards the end of 1h2011 and were only meant for a summer trial of sorts in May or/and June and therefore don’t really count towards a full season.
In a growing PRC consumption market, Eratat doesn’t seem to be growing and keeping up with the competition. The likes of China Lilang has its order book growing at 30% and a whopping 135% for its L2 brand while Eratat’s orders are decreasing. In a market where the barriers to entry are low, more and more top foreign brands are coming into tier 2 and 3 cities and competing directly with Eratat for market share, can Eratat keep up?
More troublingly, recall that even for 1-2 years before Eratat Premium came into the picture and there was ONLY Eratat classic, the management had been using the rhetoric that receivables were growing because they wanted to encourage distributors to upgrade their stores,  improve frontage, presentation and branding, directly own their stores etc. So okay was that done and completed with all the Eratat classic stores?
Then now after going through all that they want to tear everything down and change all the Eratat classic stores to look like Eratat Premium stores? Was all that money and extension of receivables over the previous 2 years before Eratat Premium wasted? Down the drain? And so now they got to start all over again to extend receivables again and additionally even offer subsidies?   Surely the store owners will be perplexed at frustrated at having to build and construct only have to tear down and reconstruct again so soon after? Something is just not adding up here. Either we’re not getting the whole truth or their strategizing is all over the place. This management also doesn’t seem to be concerned with shareholder value.
Was the placement really necessary? Even without the placement they would have had over 100 million in cash after fulfilling the order book, surely 100 million is enough of a buffer not to have to resort to dilution of shareholder value?
And then now that their shares are trading at a P/E of 1.5 and 0.4 times of book value, incredibly low valuations, there is no sign of interest from any major shareholder including Lin Jiancheng himself to purchase any more shares. Nor is there any sign of interest in initiating a share buyback.
Yes there is no mandate for a buyback but Hu An Cable for instance is about to initiate a shareholder meeting specially to obtain approval for a share buyback even though their AGM is far away, their management is even trying to allow Singapore-based shareholders to sell their shares in Taiwan where their shares are trading at almost a 100% premium!
Is the Eratat management concerned with protecting shareholder interest? They need to put their money where their mouths are.
Working capital requirements are so high and so much of their money has to be committed to suppliers and distributors in order to fulfill the order book, and there is no sign of distributors making enough money from Eratat products after all this time for receivables to go down. If things continue like that, will they ever be able to grow their order book without raising cash through share dilutions?
Finally, one more point to consider is that prior to May 2009, the largest shareholders in Eratat were actually not Lin Jiancheng himself, but his parents-in-law under the company Hero-Win, who had 212,000,000 or more than 51% of the shares while Lin Jiancheng only had a very small share. On 22 May 2009, Eratat announced that Hero Win was selling ALL its shares in Eratat for 12.5 cents, of which only just over half or about 120,325,000 shares were to be ‘bought’ by Lin Jiancheng, 7.8% to Ye Sanzhi, and the rest to the open market. 
As a result of this, the ‘free floating shares’ in the company increased significantly to 62.9%.  This is always worded nicely as being meant to ‘increase the liquidity of the shares’ but this is essentially a euphemism for major shareholders disguising the fact that they are actually cashing in on their shares after the IPO, which is especially so because Hero Win’s cost price for the shares was only 2.2 cents. 12.5 cents therefore represented more than 500% profit for them!
If this was such a promising enterprise, why were they selling their entire stake! These were the controlling majority shareholders we’re talking about. No doubt some of the shares went to Lin Jiancheng but that’s all within the family and the family as a whole doubtlessly netted huge profits from the sales of the rest of the shares. Make of it what you will but I’m out of this stock for now. I wish all of you Eratat shareholders the best of luck.

Hi all, I'm new to posting in the forums, but I've actually been following the threads historically. I'd like to add my own insights to eratat lifestyle.

Firstly, there's been a lot of talk about focusing on the fundamentals of the company, and then the analysis goes to compare between how this year's results compared to last year, especially the order book numbers.

I find that quite strange because erata is still by 9% plus quarter on quarter and 53% or so for the 9 months comparison.

In addition, all of the fundamentals are still good actually... in terms of NTA, price to book value ratio, cash holdings, etc. Yes, receivables is rather high, but from what I've seen and know of, the community have been able to track the physical development of their stores, etc... so we know that receivables (and cash for this matter - since the communicty have been able to track the cash holdings too) is based on real orders from new store opening from their distributors, etc.

Please don't be so alarmed about the order books. Remember that when eratat moved to their premium range, all of their distributors would have started with 0 inventory. As such, the first order will normally be much bigger than subsequent orders (at least until the distributors scale up).

As such, I'm not surprised that the total order for everything is less than the year before (although premium orders is up). This would imply that footwear and classic orders would be lower.

Wasn't that somewhat expected? Eratat had switched from classic to premium and have decided to move up the value chain... giving up sales from more traditional sources. It's quite unreasonable to NOT expect a hit while this happens.

Strategy takes time to manifest and cannot be observed over 1 or 2 quarters only.... I would dare say that if such observations can be observed so fast, I'd worry more - in cases of fraud, etc.

Anyway, I think that those vested should be patient because the fundamentals are still very solid, and cash, receivables, etc can all be tracked. In addition, they have managed to collect back all receivables above 120 days (as mentioned in their Q3 financial statements).

I've followed a couple of other stocks before, with turnaround stories (including Asia Dekor - with a turnaround strategy, and Zobee - with a moving up the value chain story). They had been undervalued for a long time, but eventually moved to provide with very good returns.

While Eratat's story is not a turnaround story like Asia Dekor, eratat's story does exhibit certain similarities because it's a strategic move too. Follow the ratios - like the product mix ratio, the margin ratios, the account receivables, etc. It does make sense. It might not all be great - but that's exactly how a change in strategy should look like - some parts will falter while the change of focus from classic to premium is made.

The same occured with Zobee - when they moved from OEM to ODM to retail. Their stock price moved in excess of 1000% - from a low of about 2 cents to 20 odd cents... and eratat has far been fundamentals and governance/transparency. Either way, I believe that the stock still has very strong fundamentals (good liquidity ratios (also use acid test ratios as a more stringent liquidity ratio), good NTA, PTB, margins, etc... effectively, all the fundamentals are in the right direction).

As such, we next have to look at the governance/transparency aspects. So far, the story told by management, and from the analyst and store vists, including tracking of capital and actually seeing it being translated into their fashion shows and shop openings, etc... does indicate that there's no funky business occuring).

Expected EPS at 8 cents for the year end is just crazy. It really doesn't matter if growth is slowed while they switch strategy.

Hold it for a bit and it's almost a certainty that the market will notice it. After all, it's a market of fear at the moment, with all of the bad news and the uninformed investor will most likely stay away until things look better.

Going in later will likely just mean that one will be too late because it's not easy for the retail investor to time the market. Small caps also don't really move until a sudden interest peaks and elements of greed take over the fear rationale. Just be patient, and adopt a wait and see (with monitoring) approach. That's my 2 cents. Cheers

Grrr - I cannot seem to get the formatting right. It's all clumping together. If admin or someone can help out. It'll be appreciated. Thanks

hmm.. cannot compare 2H2011 premium order with 1H2012 premium order as well.
since 2H order is usually higher, due to more expensive materials being used for the autumn and winter.
by comparison, i would think that the quantity of orders received for 2H2011 and 1H2012 is roughly about the same.
they expand quickly in 2011, so for 2012, naturally, would hv to slow down and wait for the shop to breakeven.
 
Eratat's business model is very different from other apparel company. For other apparel company, the MORE the distributors it is, the better, regardless of the quality. But Eratat takes on a different approach, by focusing on the quality of distributors. Don't forget in 2H2011, they discontinued some distributors, which dropped from 17 to 12. Naturally, the book order in 1H2012 will be affected and will be lower than 1H 2011, due to lesser distributors and some of the classic shops being renovated.
 
Do note the renovation will be carried out in phases, in order to minimise sales disruption.
 
ethan999, u concern on the classic renovation is a valid one. But as the product mix changes and branding evolves, i think it's reasonable to accept that some facelift of the shop would be needed. The renovation is not a complete tear down of the shop and then do a 180 degree makeover. i don't expect renovation of a single shop to take months, at most a few weeks to finish.
And, besides that, for greenrockie, the margin u calculated for apparel did not include third party orders. who knows, there may extra orders coming in to add to the 1h 2012 confirmed order last minute.
 
as for sharebuyback, i think the management has said be4. They didn't pursue a share buyback mandate for this year. If insiders want to buy, there will be rules which have to be followed. regarding improving the valuation, the answer is the same. Ken will ask what is the objective of doing dual listing? although Eratat qualifies for HK listing, planning for a dual listing would take up a considerable resources from the management. That time might be better spent in enhancing the branding and focusing on improving the operations. Ken says there isn't a need to follow other companies to do TDR or dual listing, which leads to speculation. They believe as long as they focus on doing their business well, when the bull resumes and sentiment improves, they hope that Eratat would be one stock that would generate interest and be those that will fly.
 
Anyway, these are points I have gathered from the briefing. Ken did explain well about the rationale of their business and why they are doing this and all the numbers so far seems to be align with what they say. so, i guess it's up to individuals whether they are comfortable with Eratat. My suggestion is wait for a few more quarters to see. I do share the same concern about whether next year, it can continue to grow. If it can grow abt 10% to 15% and a decrease in receivables, i'll be happy.
 
I'll still continue to hold. I agree the growth next year will be a concern. I'll point that out again in Q4 briefing or during the AGM when I see Ken again.
 
if u do some maths:
its net cash at 170+ million rmb is around 8.4 cents cash per share.
If every year, it achieves a conservative 8 cents EPS and factoring in all receivables are collectable, we should see its cash balances grow (unless it uses cash for some other new product expansion)
 
so, by end of 2012, i am expecting its cash balances to have around 14-16 cents SGD per share.
 
For this Q3 result, i'll give the management the benefit of doubt.
For Q4, they have to give trade deposits for next yr book order.
so, by Q1 2012, there will be no excuses if its cash balances do not increase.
 
i'll give Eratat another two more quarters... !!!