Eratat Lifestyle

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11 years 4 weeks ago #16783 by newbiestock
Replied by newbiestock on topic Eratat Lifestyle

GEO wrote: Investors should be more concern on whether the company managed the use of the proceeds to achieve what it suppose to be achieve i.e. sales and marketing office and showroom in shanghai, target of 10 self owned flagship shops in shanghai by end of 2013. And also more importantly Sun Hung Kai & Co Limited providing opportunities, new contacts of new investor communities, funds and financial institutions to eratat so as to compensate for the high interest rate paid to them else it will become a win lose situation.


Geo, bingo. u hit the nail.

I suppose Eratat also know the bond interests will be start factoring in from the 2H2013. New distributors also coming in in the 2H2013. That's why if u look at Q2 2013, we see a 20% increase in trade deposit for apparel orders for the 2H2013. That will give a clue about the combined 2H2013 apparel revenue.

As far as what I heard from the IR last time, they have utilised the bond proceeds and begun their expansion plans. Construction planning should be in progress. Let's watch n see.

Sun Hung Kai & Co Limited providing opportunities, new contacts of new investor communities, funds and financial institutions


Geo, I am really glad that u have noticed this. I actually raised that question in the Q2 briefing. Let's look forward to see what value SHK can bring to Eratat.

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11 years 4 weeks ago #16784 by momoeagle
Replied by momoeagle on topic Eratat Lifestyle

wonghw12 wrote: Just a thought, would it be more informative to compare receivables as a % of revenue instead, as receivables are outstanding only when goods are sold on credit?

However, this metric also shows that Eratat is faring worse than its peers. Not sure why the distributors are able to squeeze Eratat so tightly, but I suspect this is a key reason why Eratat is going to open its own shops.

Thanks, did think of that. But that would mean we need to calculate the change in receivables vs the revenue for that quarter or year.

I believe it would be more informative to compare it to Net Asset Value.


Just like Benjamin Graham wrote in The Intelligent Investor, "Today's investor is so concerned with anticipating the future that he is already paying handsomely for it in advance. Thus, what he has projected with so much study and care may actually happen and still not bring him any profit. If it should fail to materialize to the degree expected he may in fact be faced with a serious temporary and perhaps even permanent loss."

Question to ask on the bullish camp is, are the investors investing now in anticipation of the future?

Is the future really the answer to all the potential red flags pointed out?

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11 years 4 weeks ago #16785 by qwerty89
Replied by qwerty89 on topic Eratat Lifestyle

momoeagle wrote: Qwerty, I would appreciate if you would read with more detail on my posts. I have said that it is not just about high receivables, but about the relative size of the receivables.

Key phrase: RELATIVE SIZE

Using the data you took out, it is obvious that by industry standards, Eratat has the highest relative size of receivables as compared to total assets.

Zuoan
30-Jun-13
Trade and other receivables 465569
Total assets 1747535
26.6% of total assets are receivables

Xiniya
30-Jun-13
Trade receivables 232829
Other receivables and prepayments 55663
Total assets 1664105
17.3% of total assets are receivables

Lilanz
30-Jun-13
Trade and other receivables 737564
Total assets 2514578
29.3% of total assets are receivables

Eratat
30-Jun-13
Trade receivables 473394
Other receivables 101517
Total assets 1158127
49.6% of total assets are receivables


Now, where is the misinformation?
I'm using your data, which has proven my point.


It's pedantic to argue about receivables vs receivables + cash. Let me give an example. Would Eratat issuing more bonds comfort you? In this way, it will have even more cash on hand, and receivables will shrink to an amount that's in line with its peers. Will that make you happier? eg. lilanz, with its lower receivables, has >RMB400m of outstanding debt

In my view, it's more appropriate to look at receivables + cash. Why? Because that is how their BUSINESS MODEL works. High cash + high receivables. From the financials, cash and receivables together are a similar proportion to total assets as compared with the industry standard.

Finally, let's not forget that it is NOT unusual to expect higher receivables from Eratat. Eratat is a relatively new entrant into the casual apparel market as compared with its peers. With less to offer(less established, unproven track record, etc.), naturally it will have to offer more attractive terms to distributors to break into the market and gain market share.

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11 years 4 weeks ago - 11 years 4 weeks ago #16786 by momoeagle
Replied by momoeagle on topic Eratat Lifestyle

qwerty89 wrote: It's pedantic to argue about receivables vs receivables + cash. Let me give an example. Would Eratat issuing more bonds comfort you? In this way, it will have even more cash on hand, and receivables will shrink to an amount that's in line with its peers. Will that make you happier? eg. lilanz, with its lower receivables, has >RMB400m of outstanding debt

Yep, which is why I mentioned it makes more sense to compare with NAV. Sure, if Lilanz has great outstanding debt, it doesn't make it any better to invest in it too.

qwerty89 wrote: In my view, it's more appropriate to look at receivables + cash. Why? Because that is how their BUSINESS MODEL works. High cash + high receivables. From the financials, cash and receivables together are a similar proportion to total assets as compared with the industry standard.

What's the point of comparing proportion of cash vs proportion of receivables as a percentage of total assets? Shouldn't it be comparing them with industry standards?

You have ~48% in cash and ~48% in receivables, vs ~20% in cash and ~20% in receivables for the industry?

qwerty89 wrote: Finally, let's not forget that it is NOT unusual to expect higher receivables from Eratat. Eratat is a relatively new entrant into the casual apparel market as compared with its peers. With less to offer(less established, unproven track record, etc.), naturally it will have to offer more attractive terms to distributors to break into the market and gain market share.


Look at my quote from the book of Intelligent Investor.

I'm not saying this company won't go far in the long long run, but question is... how long is this long run? 3 more years from today? I doubt it. It is already 5 years since its IPO.

The risks are there, it remains up to the investor to decide whether it is worth taking.
Last edit: 11 years 4 weeks ago by momoeagle.

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11 years 4 weeks ago - 11 years 4 weeks ago #16787 by newbiestock
Replied by newbiestock on topic Eratat Lifestyle
sales incentive- this happens only once in a while. If the sales incentive can motivate the distributors to open new shops in the future, why not.

renovation subsidy - this only applies to the old shops and those old shops when first setup were paid by the distributors themselves. New shops uses the new look and the setup costs are beared by the distributors.

Relative size - if u use RMB271.4 mil, exclude VAT and trade deposits to supplier, the % is only 20+% of the current assets. I hope I dun have to repeat again. Please distinguish the differences between receivables for distributors vs trade deposits for suppliers. I will feedback to the CFO that maybe he should separate them carefully in the balance sheet, in case some misinterpret it.

Made in China- Do u know Eratat is marketing its apparel as a UK brand? Their trademark is registered in UK. well, even established brands in Nokia can vanish and we see Samsung, a small player in the phone industry in the previous decade rising to top player today. Please don't conclude so early that small players can't compete with established players. As long as Eratat innovate its design and stay ahead of fashion trends, it has the ability to compete with big players.

I'm not saying this company won't go far in the long long run, but question is... how long is this long run? 3 more years from today? I doubt it. It is already 5 years since its IPO.


Momoeagle, this is a very dangerous remark that u made. I am ultra-bullish on China. And, I am also very confident that Eratat will last much longer than 3 years from today. This year will be a record profit and next year will even be better.

If you think Eratat's growth of cash balances are due to bond proceeds n fund raising, then u are totally wrong. As I said before, every 485 days, their cash balances will grow at least a RMB100++ million (which is their retained earnings). The growth of their cash balances are due to hard work of the cash accumulated over the past few years. Sino Grandness raise cash even more often than Eratat but why we don't see sino grandness grow year after year and why after 2011, Sino Grandness did not give anymore dividend at all?

Momoeagle, Lilanz is the industry leader in the apparel industry. They got Chen Daoming as their endorsed spokesperson and the Lilanz brand is highly well known among the Chinese there. If u invest in Lilanz a couple of years ago when it is the size of present Eratat, you would have made a multi bagger returns and u should see the dividends multiplying over the years.

As what Geo says, look at the future, instead of just looking at the past. If the management did what they promises, build a HQ and open 10 flagship retail shops, give them a pat because they honour their promises. Better than those companies that overpromise and ended up giving a blank cheque.
Last edit: 11 years 4 weeks ago by newbiestock.

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11 years 4 weeks ago - 11 years 4 weeks ago #16788 by momoeagle
Replied by momoeagle on topic Eratat Lifestyle
"Relative size - if u use RMB271.4 mil, exclude VAT and trade deposits to supplier, the % is only 20+% of the current assets. I hope I dun have to repeat again. Please distinguish the differences between receivables for distributors vs trade deposits for suppliers. I will feedback to the CFO that maybe he should separate them carefully in the balance sheet, in case some misinterpret it."
So if these break-downs are also present in other industry players as well, won't their percentage go even lower???

Which still means Eratat is still at the higher end compared to its peers?


"Made in China- Do u know Eratat is marketing its apparel as a UK brand? Their trademark is registered in UK. well, even established brands in Nokia can die while in the previous decade, Samsung was a small player in the phone industry, yet it can rise to top player today. Please don't conclude so early that small players can't compete with established players. As long as Eratat innovate its design and stay ahead of fashion trends, it has the ability to compete with big players."
That's not even a fair comparison.

Nokia die in the smartphone era, apart from poor innovation, is also partly due to the strong attacks from the well-funded Apple. In addition, Samsung was already quite a player in the phone industry, and has a enormous amount of funds to play along. Both Apple and Samsung has substantial war chests and branding built over many many years.

What has Eratat compared to those two, since you made an indirect comparison?

Furthermore, why market as a UK Brand when it is clearly not from UK and everyone knows it is from China? That is their market strategy which I find it very weird, but will decline to comment further.


"Momoeagle, I am bullish on China and will be. This is a very dangerous remark that u made. And, I am also very confident that Eratat will last much longer than 3 years from today. This year will be a record profit and next year will even be better."
I merely mentioned my personal opinion that Eratat will not achieve a strong breakthrough within 3 years. I don't see where I meant they can't last longer than 3 years.

"If you think Eratat's growth of cash balances are due to bond proceeds n fund raising, then u are totally wrong. As I said before, evry 485 days, their cash balances will grow every RMB100++ million (which is their retained earnings). The growth of their cash balances are due to hard work of the cash accumulated over the past few years."
Well, I don't see where I said their growth of cash balance are due to bond proceeds.

"Momoeagle, Lilanz is the industry leader in the apparel industry. They got Chen Daoming as their endorsed spokesperson and the Lilanz brand is highly well known among the Chinese there. If u invest in Lilanz a couple of years ago when it is the size of present Eratat, you would have made a multi bagger returns and u should see the dividends multiplying over the years."

Hindsight are 20/20. There are many many more examples and just as many bad ones. So I don't see the point at all...


"As what Geo says, look at the future, instead of just looking at the past. If the management did what they promises, build a HQ and open 10 flagship retail shops, give them a pat because they honour their promises. Better than those companies that overpromise and ended up giving a blank cheque."

Anticipation of future?
Last edit: 11 years 4 weeks ago by momoeagle.

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