Eratat Lifestyle

why do u all consider Eratat as high risk?

Just because it is s-chip?

i hv a different opinion. let's just look at the biz model.

First, it is able to generate consistent and predictable revenue and profits. Not all sg companies are able to do that. in fact, there are sg listed companies that are struggling too just to make a few millions in a year. Judging from its consistency, Eratat is not highly speculative stock.

Second, 衣食住行. Clothes is a fast moving consumer goods, just like food. Their track record shows all receivables have been collected.

Thirdly, the downside looks very limited. They are not going to give a one off renovation subsidy for this year. the reason for giving a subsidy last year is understandable and is in line with their long term biz strategy. Do note Eratat is now purely a menswear apparel. No more differentiation between Eratat classic or Eratat Premium. Given such transformation needed, does it make sense that renovation is needed to give all the old shop a new image look? Take note men usually stick to one or two clothing brands as long as they like the design and they usually care less about pricing.

Fourthly, the management is aware of the long credit terms that they are giving to their distributors and rest assured that plans are in place to gradully shorten those credit terms, which i believe u need to give them a year to three. Just do a simple maths, if the credit terms are cut from 120 to 90 or even 60 days next time, imagine the growth of the cash balances in a year. Dividends will also grow, so will the yield.

Fifth, skeptics sounded like as if the company is unable to grow at all. If the company does not have a viable expansion plan, do u think this bond issue deal can be discussed for more than a year? which CEO doesn't want their company share price to be high? which CEO also does not want their company to expand? The company already said they are making the transformation. Once the branding and repositioning has been done, i am sure they will execute their next phase of expansion.

when i wrote the article on Lee Metal Group, ppl say hey, the dividend is not bad, but this counter is too illiquid and its revenue and net profit were shrinking. Ppl says it has no growth at all. only until last year, company profits got better and it got the valuation it deserved when price shoot up from 20+ cents to 37 cents in less than 6 months.

I rather put $ in Eratat, have a peace of mind than pt $ in those myamnar counters WE, contel etc, which are even more speculative, which their overseas expansion has not been executed and proven yet. Eratat at least knows its China market and when they wish to expand further in China, a system has already been in place for them. Eratat is a risky counter? i dun agree.

There is always risks involved in any kind of investments. I am still vested after accessing its fundamental facts.

newbiestock,

all your points are valid, I consider high risk due to the following, I did not mention it cannot expand.

Red flags: (Not to be taken in isolation, but as a whole)

1) Third fund raising exercise, without tangible expansion results.
2) Founder paring down stakes.
3) High receivables
4) Transparent only at good news, when order book is growing, they update the investors, when it is stagnant, they do not update, and claim its the same, so why bother, I have not confidence with some fly by night transparency, they could have just show the update the order book every quarter and show us that it is roughly stable.

The examples you quote are also risky counters, but that others are risky doesn't make Eratat less risky, consistent profits is good, but other nitty gritty such as inventory days and receivable days and FCF are important as well, I stop following Eratat so the figures might have improve.
Risk in business model, competition, low barrier of entry and so far no numbers to prove that their strategy of moving further up the value change from causal to prenium is working.

It is true that all senior management want the best for their companies, grow their companies etc, but not all managers are competent enough to do it. Just look at the shipping industry, another cut throat industry, many are struggling, even more of the smaller ones went bankrupt, but the ones steer by competent management still earning good profits. Even those with very similar models and size can have very different results. Founder has great foresight in moving away from shoes to casual wear, that is what attract me to it initially, but when it move on to premium, I have my doubts with my understanding of chinese taste, Chinese love face, they will spend big, but that brand must make them feel falltery before they spend millions on it. I felt Eratat would be better off competing on price and quality in the mid - casual segment. If you want designer clothes, would you go for western brands or china/singapore brand? I am not sure what you are so confident of their model, are you hearing may chinese talking about the brand, wearing that brand, or are you seeing the brand get splash all over chinese TV show, especially the high profile ones? Maybe you can share regarding this. Before I exit, I calculate the number of pieces of accessories(prenium) sold are hitting a road block, they are selling less pieces and margin is still relative stable resulting in lower revenue in that segment, but I have stop tracking since then, maybe it has improve? Its for vested friends to find out. Again YMMV.


Risk is dependable not on the product but the amount of knowledge one has on the company, I believe you know a lot about the company, and hence you find it less risky, which is a logical conclusion.

On a similar vein, I can quote many many more counters that are less risky, with no or less red flags, but that is besides the point when we look at Eratat.

And yes, I believe not all s-chips are bad, i also invested in Yangzijiang and is looking closely at sound global, but I am 100% sure many s-chips are bad, especially with so many fraud cases with companies in the textile sector and the up and coming one could well be china paper, to remind us to keep our toes when we are investing in companies.

I am not sure if all/many china companies are like that, but given my experince with the Chinese, I dare 100% say not 100% or even majority of the Chinese do business like the way we did in singapore or the west. I was really shock when a chinese friend told me who do not know chinese companies have 2 accounting books, one above the desk and 1 below it.

It is true that there are risks and rewards to be gain in every investments, but I for one will not brush aside counter agruments, no matter how confident I am with a company. I would look it up seriously, and if I am still satisfied with the risks I am taking, then fine.

I believe some may feel that since we have already di-vested we are just jealousy that it has a good run, and hence we talk down the counter for revenge or simply because we are sour. I sincerely do not think this one, if in Q3, and later indeed, we are proven wrong, distributors increased, inventory days and recevable days improve, founder buy back stakes, I am more than happy that those with guts and knowledge made it big!!

But maybe I am just plain silly to worry that some are rushing in without paying heed to risks and seeing only rewards.

Ya, I am silly. haha

Newbiestock, we are seeing good numbers over last few quarters and Sun Hung Kai has done both financial and biz audit over last 18 months. Let's just enjoy the div to be given out soon and wait for more positive new flow.

My guess is that many are waiting to load more should price weaken....

np, greenrockie. Thanks for sharing your inputs.

for me, i dun really care so much abt the shirt brand, as long as it has a nice design that matches well.

greenrockie, we need to support more local companies, including Singapore brand. we hv OSIM as an example. I am sure more sg companies can build a good brand as well. Not all western brand are good too.

gangho, oceangrace, ya... we just wait patiently lol. as long as company continues to make good profits, the share price will awaken someday.

greenrookie wrote: newbiestock,

all your points are valid, I consider high risk due to the following, I did not mention it cannot expand.

Red flags: (Not to be taken in isolation, but as a whole)

1) Third fund raising exercise, without tangible expansion results.
2) Founder paring down stakes.
3) High receivables
4) Transparent only at good news, when order book is growing, they update the investors, when it is stagnant, they do not update, and claim its the same, so why bother, I have not confidence with some fly by night transparency, they could have just show the update the order book every quarter and show us that it is roughly stable.

The examples you quote are also risky counters, but that others are risky doesn't make Eratat less risky, consistent profits is good, but other nitty gritty such as inventory days and receivable days and FCF are important as well, I stop following Eratat so the figures might have improve.
Risk in business model, competition, low barrier of entry and so far no numbers to prove that their strategy of moving further up the value change from causal to prenium is working.

It is true that all senior management want the best for their companies, grow their companies etc, but not all managers are competent enough to do it. Just look at the shipping industry, another cut throat industry, many are struggling, even more of the smaller ones went bankrupt, but the ones steer by competent management still earning good profits. Even those with very similar models and size can have very different results. Founder has great foresight in moving away from shoes to casual wear, that is what attract me to it initially, but when it move on to premium, I have my doubts with my understanding of chinese taste, Chinese love face, they will spend big, but that brand must make them feel falltery before they spend millions on it. I felt Eratat would be better off competing on price and quality in the mid - casual segment. If you want designer clothes, would you go for western brands or china/singapore brand? I am not sure what you are so confident of their model, are you hearing may chinese talking about the brand, wearing that brand, or are you seeing the brand get splash all over chinese TV show, especially the high profile ones? Maybe you can share regarding this. Before I exit, I calculate the number of pieces of accessories(prenium) sold are hitting a road block, they are selling less pieces and margin is still relative stable resulting in lower revenue in that segment, but I have stop tracking since then, maybe it has improve? Its for vested friends to find out. Again YMMV.


Risk is dependable not on the product but the amount of knowledge one has on the company, I believe you know a lot about the company, and hence you find it less risky, which is a logical conclusion.

On a similar vein, I can quote many many more counters that are less risky, with no or less red flags, but that is besides the point when we look at Eratat.

And yes, I believe not all s-chips are bad, i also invested in Yangzijiang and is looking closely at sound global, but I am 100% sure many s-chips are bad, especially with so many fraud cases with companies in the textile sector and the up and coming one could well be china paper, to remind us to keep our toes when we are investing in companies.

I am not sure if all/many china companies are like that, but given my experince with the Chinese, I dare 100% say not 100% or even majority of the Chinese do business like the way we did in singapore or the west. I was really shock when a chinese friend told me who do not know chinese companies have 2 accounting books, one above the desk and 1 below it.

It is true that there are risks and rewards to be gain in every investments, but I for one will not brush aside counter agruments, no matter how confident I am with a company. I would look it up seriously, and if I am still satisfied with the risks I am taking, then fine.

I believe some may feel that since we have already di-vested we are just jealousy that it has a good run, and hence we talk down the counter for revenge or simply because we are sour. I sincerely do not think this one, if in Q3, and later indeed, we are proven wrong, distributors increased, inventory days and recevable days improve, founder buy back stakes, I am more than happy that those with guts and knowledge made it big!!

But maybe I am just plain silly to worry that some are rushing in without paying heed to risks and seeing only rewards.

Ya, I am silly. haha