Eratat Lifestyle

hope this will be the last pt i made for the receivable.
"Curbing revenue growth doesn't sound all that great. Margins don't increase substantially."
- Think:
1) If they don't extend credit beyond 90 days, how to get distributors to work with them to open shops?
2) if raise revenue and book order, so long as credit remains above 90 days, receivables will continue to increase every quarter release. And, when receivables rise, investors also complain.
3) if set a cap on revenue but focus more on margin, it will reduce receivables over time. But investors also complain and worry about growth.
so, 1), 2), 3) - either way also wrong and got investors worry here and worry there. U tell me how u can reduce receivables, yet increase revenue and margins, yet the distributors are willing to put cash in to open new shops? momoeagle, if u are the CEO, tell me how u can achieve all the three things? what strategy can u implement? The distributors only have limited cash. They also need to pay labour and salary, so do Eratat as well. if u got good suggestions, pls suggest it to the management. And, in china, it's hard to borrow money due to high interest rates.
it's like our famous Cheaper, Better and Faster rally call from our labour union. Tell me how one can achieve all three things at one go.
 
Premium just newly launched and individual apparel piece of orders are not large. Naturally, the higher cost will offset the higher price. Wait a while. as no of apparel shops increase, orders increase, as it scales up, average costs will drop. actually, for 38% to 42% of gross margin for an apparel is already very good. Outside international brands, also gt around that gross margin. u can't expect 60% to 80% gross margin for apparel bah. while footwear drop, overall gross margin will increase. that's the most impt.
There's always uncertainty in every business or investments. just wait for them to finalise the discussion lah. I trust they will do their best to negotiate a good subsidy for the interests of the long term business. 
ever since Eratat got IPO, they only do placement once lol.
 
I don't like telco industry. it's just service provider and margins are not good, though it's a stable stalwart. both starhub and singtel this quarter gt profit drop.
 
check this:
www.nextinsight.net/index.php/story-arch...-28-in-2-days-on-maa
“We believe the fact that the mass market is crowded due to a low entry barrier among the sportswear segments prompts us to believe Xtep is more vulnerable to the current deteriorating industry environment.”
 
- come to think of it. Lin jiancheng is a visionary CEO. Eratat has been evolving and fast responding well to the industry changes. if nt, they would hv followed the footsteps of XStep. The CEO already foresees this few years back and hv been making quick adjustments to their strategy.
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[momoeagle 10-11-2011]:

Hi newbiestock,
 
there are a few questions I would like to point out on your conclusions:
"I already expected trade receivables to increase. My opinion is Eratat is deliberately trying to curb revenue growth and trying to increase its margin by offering a higher apparel product mix, so that its receivables can be capped at a certain level for next yr."
The important consideration isn't your opinion, but whether if that is the management's plans and directives. No point second guessing on uncertainties as you aren't a controlling shareholder at all.
Curbing revenue growth doesn't sound all that great. Margins don't increase substantially.
Furthermore, they are planning to offset some trade receivables with subisidies on renovations?
How many shops are they going to upgrade? How much are they going to subsidize?

Let's do a rough estimate:
Num of shops to upgrade: 1000 (as per AR2010, more than 1000 retail shops. 2011 was supposed to have growth isn't it? So 1000 is a good estimate.)
Cost of renovation: Est 0.5mil RMB  (Abt $100k SGD, which is quite cheap for a big floor space. But this is China, so I gave some discount.)
Total cost of renovation: 500mil RMB
A subsidy of 10% will give around 50mil RMB, and hey presto! 50mil RMB taken off trade receivables!
An even higher subisidy to give HUGE support and a BIGGER encouragement to the retailers would be nicer of Eratat right? What's the advantage? Even larger reduction in trade receivables! That would make it the best of both worlds!
What's the cost? A reduction in reported NAV! How? Simple, explain it off again that these subsidies are needed for future growth! And more growth! And more growth! The question is, till when? 
 
There are just too many questions and uncertainties that I seriously believe the risks are not worth the rewards. And I see no point in explaining for the management; they should be the one addressing, not you or me. :x
 
 
"It takes time for execution to show. When u launch a new product, expect at least a year or slightly more to see result. btw, all stocks are down due to the poor macro sentiment. Not just eratat."
Not all. Telcos aren't really down much.
Anyway, this isn't any reason not to consider the possibility of major shareholders exiting on the quiet because of internal events.
 
"Why not? Young company needs time to grow and for the execution to show result. It can't happen overnight. PREMIUM is just newly launched. Eratat needs to rest and consolidate as well after an explosive growth in 2011. After enough resting, it will grow explosively another time again. When the explosion comes again, that will be the time that Eratat shows another big jump in share price."
I don't see Eratat as having grown at all in 2011. Most of the asset growth comes from substantial increase in trade receivables, which should be treated with due caution.
 
 
BTW, for others, I'm not vested.

Hi newbiestock,
you are basically throwing all questions and problems that a CEO should solve to me, and taking upon yourself to answer questions that the management should be answering.
The fact that "If they don't extend credit beyond 90 days, how to get distributors to work with them to open shops?" tells that no one wants to sell their products unless being given huge incentives.
As for trade receivables, anything above 60 days is a very long time, and beyond 90 days? To me, this is a red herring.
 
And if
"so, 1), 2), 3) - either way also wrong and got investors worry here and worry there."
the question becomes, why bother to invest if all possible ways are wrong?
 
I don't see their strategy as being good at all. From the way I see it, the management has no idea how to solve their problems, and having such a huge trade receivables made them puppets of their distributors; their distributors can just walk out on them without any blow to their personal assets if Eratat does not agree to their terms.
 
I have also posted before why I view their placement very negatively, given their acceptance of a lower placement price when the earlier failed. Was it even necessary to accept it so hastily when the market was down? Wasn't it them who said earlier that they had no necessity for it, and would prefer to wait for a better price, when CMIA first expressed interest?
 
With the latest report by them, by using subsidies to offset trade receivables, this is to me a 2nd red herring. Of course, I do hope I'm catastrophically wrong and Eratat will rise back to 30cts for investors around, but objectively based on my understandings, this company is done. Ask to give more time, and more time, and more time? I agree, that time will tell if this company is indeed what it claims to be. For me, I'm not going to risk my hard earned money like this.
 
*In case you are wondering why I have interest in all these textile companies, I had once studied the textile industry, and was once vested in Hongxing and China Sky. Fortunately, I have managed to escape with nett profit before things get blown up. Precisely because I recognized that it is a market that is already crowded due to a low entry barrier.*

hi, momoeagle,
there are reasons why i throw back the questions back to u. Criticise them is easy but to actually offer a viable, practical solution that fits reality is not easy. if the distributors need to invest few millions to open several shops, u do need that long term credits in order to make that happen.
 
hongxing is still in sportswear and being a big company (including XStep as well), it can't evolve and adjust as fast as Eratat. Eratat is heading the right direction, expand fast in a year, consolidate its position in the following year and then expanding fast again in the following year.
 
seriously, which manufacturer will be in the right mind to cut down the number of distributors? isn't it the "more the distributors, the merrier"? think abt why Eratat is doing the reverse way by focusing on Quality distributor instead of Quantity distributor. The larger the number of distributors, the less responsive it is to respond to market changes.
 
If u ask me how long to wait, i don't know. In the short term, I can't predict when the share price will move. But in the long term, within three years, Eratat should be able to grow to a much much bigger size than what it is now.
 
For young and growing company, one needs to be patient. If u want to maximise capital returns, three years will be a good investment horizon. if u buy at a good price, just hold for three years. Anything that happen in between, just try not to bother with it. so long as u meet the management, can trust them to execute their strategy, then the returns will come. if can't wait three years, then go for mature company, but the capital return will be smaller.
 
as u know, momoeagle, i once worked in a tech startup company (from a program i told u before.) The mindsets of VC and angel investing are also very different from the mindset of a retailer investor in a stock market. although i am not qualified or hv the capital to invest like a VC and angels... There are super wealthy ppl that don't invest in stock markets. They buy unlisted company when is young and wait for it to grow and exit when the company gets acquired or enters IPO.
 
tat's why when ethan999 mentioned about lin jiancheng's parent-in-law making huge profits from the sale, i am not surprised at all. but of course, investing in a growth company has a lot of inherent risks. if u want a safer return, then go for value investing in a mature company lol.
As for eratat, if the risk appetide doesn't suit u, then don't buy. I am not doing recommendation on Eratat as well but I will still to continue to hold because i still see value, until subsequent quarters prove me wrong.

.

Everyone just got lucky as Eratat hit 15 cents.
Lucky -- cos of Penny Stock Rally, the mother of all rallies for the past 12 months. On top of that, the hot sector is S-chips, quite unbelievable but true. S-chips are all rallying after being the Bad Boy of the year.
Such is investing.

 
Hi Reck - I don’t think this is luck as everyone knows they are going to report EPS of abt 8 cts for YE2011 later this mth.  I couldn’t understand why retail investors were selling at 12 cts or PE of 1.5 but yet it went further down to 10 cts.  Why? Only those who sold at such low prices can answer this.
It is true that blue chips will lead a market recovery and rotational play later will push up penny stocks. You will note that many speculative S-Chips recovered first but with their poor fundamentals , it is very risky to hold them. By the way, the ST China index now is only 262 and still  below last yr’s peak of abt 310 ( from memory )