Executive Chairman Lin Jiancheng (centre) sharing a light anecdote. He is flanked by CFO Ken Ho (left) and Ms Lao Mei Leng, a partner at Moore Stephens LLP, which is the external auditor of Eratat. Photo by Leong Chan Teik 
Time & date: 2.30 pm, 25 April 2013.
Venue: M Hotel, Anson Road
OF PARTICULAR INTEREST to shareholders was the share buyback mandate Eratat Lifestyle sought shareholder approval for.
At the back of the minds of shareholders was the fact that the stock is undervalued in some respects: The business, for example, has net cash of 15 cents per share but the stock trades at 14 cents.
Put another way, the market is according no value to the business which sold more than RMB1 billion worth of apparel and shoes and earned RMB142 million last year.
Questions shareholders asked included: How many shares would Eratat buy?
The answer from CFO Ken Ho: "We have not fixed a target but we can purchase up to 10% of issued shares per year according to the mandate. We will also look at factors such as the available funds and market conditions."
Will the purchased shares be kept as treasury shares or will they be cancelled straight away?
Ken Ho: "The mandate allows us to keep them as treasury shares or to cancel them. For a start, we will keep them as treasury shares when we buy them."
(My personal guess is that the buyback mandate could be mainly to serve as a defence mechanism for Eratat stock in the event that the market experiences heavy turbulence, as happened last year and the stock fell to 7 cents.) 
L-R: Tao Yeoh Chi, Lam Peck Heng, Kenny Lim (all 3 are independent directors), company secretary Tan Cher Liang, CFO Ken Ho, and Executive Chairman Lin Jiancheng. Photo by Leong Chan Teik
Here are some of the highlights of the rest of the Q&A session:
Q: The company holds a lot of cash and it doesn't have big shareholders. What if people buy shares from the market, take over the company and take away all the cash?
Ken Ho: My chairman holds 25% while another executive director holds 6-7%. The rest are in the hands of the public -- there is no other controlling shareholder apart from these 2, as far as we know. If the scenario you described were about to happen, it would become obvious and we would certainly do something about it.
Q: The company has a lot of cash (RMB357 million as at end-2012). Why can't it pay more dividends?
Ken Ho: In the past we have addressed this issue. When we decide on dividends we consider several factors. Especially because we are an S-chip, paying dividends seems to be a must in the eyes of the investor community but we also give it in order to reward shareholders. However, we also have to consider our cashflow needs. Going forward, as many of you know, we have just completed the transformation of our business model and the next phase is naturally to expand our distribution network. We have kept the dividend unchanged at 2.5 RMB cent a share as last year's profit level was similar to 2011.
Q: There has been no impairment of receivables. Receivables have inched up (+8%) even though revenue has come down (-1%). Is there a deterioration of receivables?
Ken Ho: The revenue refers to a full-year's sales while accounts receivables are recognised as and when sales are made and extinguished as and when payment is received. Our accounts receivables went up as at end of last year because of higher sales in the second half, especially 4Q. The accounts receivables are healthy, are collectible and in fact have been collected.
Eratat's designs for premium menswear shown at a trade fair in Hangzhou NextInsight file photo.Q: Any plans to diversify your business to other countries?
Ken Ho: We are focused on China as there is still a lot of untapped market there for our Eratat brand.
Q: How have the renovation subsidies and other action taken by the company helped the business?
Lin Jiancheng, executive chairman: We recognise that there will be more competition in the future. Our renovation subsidies and other revamp have been part of our corporate strategy to move ahead. And we are improving sales and marketing by training our distributors to develop or employ sales staff who go out to proactively solicit customers to come to the Eratat shops and buy products.
Q: Will you sell online?
Ken Ho: Our products are not suitable for online sale. Will anyone want to buy such high-priced products online without trying and seeing them first? Our products are not targeted at the mass consumer.
Q: Will your new distributors expect a lot of subsidy?
Ken Ho: We do not subsidise upfront -- we won't sponsor the opening of your shops. You must have your own financial strength to start your shops and business.
Q: Are sales in 1H of this year more than last year?
Ken Ho: Our current 12 distributors have been with us for many years. Their orders have been consistent in the last two years. We will continue to have the 12, so you can take that as a guide for sales this year until we appoint new distributors who will take us to a new level.
More on Eratat Lifestyle can be found in recent articles:
ERATAT LIFESTYLE: Poised for recovery in absence of one-off expense
ERATAT LIFESTYLE: New distributors likely to be strong catalyst
Comments
1) Eratat buys back 82m shares over 2 yrs and issue those treasury shares to Sun Hung Kai through warrant conversion. The exercise shifts the share from weak retail investors to a strong well known corporate investor, without any share dilution as compared against a share placement approach (which is also inferior due to current depressed share price)
2) Assuming warrant conversion price is 30cts (using the same rate based on past warrant expired in Jan 13) and Eratat managed to buy back 82m shares at avg price of 20cts and drive the share price up, it will gain $8.2m from this exercise, which can be used to cover the interest for the bond.
3) I also expect a dual listing in HK stock exchange is likely since SHK helps companies to list there.