Eratat Lifestyle

Sad.... after reading www.nextinsight.net/index.php/story-arch...atisation-candidates

I realised that Eratat is not a ready candidate for privatisation. The chairman owns 29% only of the company. Too low to facilitate a delisting, as it would be a tall mountain to climb to reach 90% acceptance from shareholders to force a delisting.

Eratat is a small company and it will have to continue to deliver performance before it can be re-rated to a PE of 8-10X frm the current 3-4.

ethan999 says: Any value investor can see Eratat is far more undervalued than CAH,

Eratat PE: 3
Price to Tangible Book Value: 0.77

China Animal Healthcare PE: 21.7
Price to Tangible Book Value: 33.85!

Furthermore, despite being valued at 482.19 million, 5 times the market cap of Eratat, it actually produced lower net profit than Eratat over the last 4 quarters at 129.7 million compared to Eratat's 131 million!

take a good look at Eratat net cash generated from operating activities... it is only 3% of PATMI... for China Animal Healthcase, the same ratio is much higher... think cash flow is also important to value investing...

Last quarter net cash generated from operating activities was 27.298 million while profit after tax was 40.167 million. 

Eratat : 9M10 PATMI Rmb 111,381,000 9M10 Net cash from operating activities after tax Rmb 2,907,000. that is under 3 percent.

I can't find their financial report for the 1q 2010 but if you look at  just the 2 most recent quarter, 2q and 3q 2010, their net profits were a combined 84.311 million while net cash generated from operating activities was a combined 60.983 million, a ratio of 72.33%. 
Since these are the 2 most recent quarters, the results seem to suggest a recovery/uptrend, or that the negative cash flow in q1 was a result of an anomalous one-off expenditure. Or perhaps q1 was due the fact that Eratat is extending credit days to key distributors to support their efforts to set up new stores. I concede that we should not simply brush q1 aside either but I just want to put the results in context, since the ratio over the last 6 months alone is actually a very high 72.33%. I guess that's the way statistics are. 
Instead of taking large loans (liabilities) from banks which are anyway extremely expensive in China or loaning distibutors the cash which is not financially prudent, extending credit terms seems to be a reasonable way to expand, considering the mode of expansion they are also focusing on - qualitative rather than quantitative.