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This is a sportswear company.
To me, China Textile companies aren't a good fundamental buy at all.

1) Low barrier to entry.
2) Highly competitive.
3) Traditionally low margins. It would be very suspicious if the margins are high.

It once attempted to issue placements shares to CMIA, but the deal fell through. Fortunately for CMIA, the share price tumbled to a low of 0.15 recently. Incidentally, CMIA disappeared from the scene.


I had some very old write-up
http://wealthbuch.blogspot.com/2011/03/m...ratat.html
http://wealthbuch.blogspot.com/2011/03/f...ratat.html


I would like to point out about the latest dividend announcement

Quote:Final dividend of RMB0.0300 per share, tax exempt one-tier for the financial period ended 31 December 2010

Hopefully my calculations are correct.

Given 414912514 shares as of 31st March 2011, and 60mil shares added after that, total number of shares = 474912514

That gives a total of RMB14.247mil to be paid as dividends, or SGD2.74mil, taking 1 SGD to 5.2 RMB.



But the recent placement of 60mil shares at $0.202 gives SGD12.12mil. Estimated about 0.4mil is used for admin purposes for the placements, so we are left with SGD 11.72mil


2.74 / 11.72 * 100% = 23.38%
So the dividends to be paid out is as much as 23.38% of the amount received from the placements? That's rather substantial.


To those who had tried to tell me that dividends are a way to allay investor fears because of recent S-chips scandal, my view is that if a company needs to do this to allay investors, it isn't IMO worth investing in at all. The efforts should be spent on growing the company.

Attached is an article from The Edge Singapore on Eratat.

(Not Vested)

I think Eratat did well, identifying the poor outlook of China sportswear & executing a strategic shift towards premium lifestyle clothing.

I did shortlist Eratat as my probable investments but did not get vested mainly based on these 2 reasons:

i. Shareholder Dilution Risk: Eratat has frequent cash call via share placement. CEO did indicate that he will rather ask for share placement rather than funding through debt as its cycle calls for cash pretty frequent.

ii. Too premium brand equity: Eratat priced its product in the premium end. As much as I choose to believe their product has quality, I just can't see how they can compete with international brand. Ask an affluent individual if he has to choose a same price product between Hugo Boss & Eratat, it will no doubt be Hugo Boss. It doesn't mean that branding a Western name will bring its brand equity close to an international brand.

Overall, unless I make my way to China and examine how an average day seemed to be for a typical Eratat outlet, I don't think Eratat can be a multiple-bagger stock win.

*Not vested*

some good (or gotten too serious/academic) discussion on Eratat:

http://nextinsight.net/index.php/compone...x#ccbp7570

sometimes, I figured that if a stock is too hard to be analysed - just keep it under your watch list till it gets cheaper to negate the unknown risk or simply move on to the next one.

dzwm87 Wrote:I think Eratat did well, identifying the poor outlook of China sportswear & executing a strategic shift towards premium lifestyle clothing.

I talked to another shoe company about the competitive situation. The market is definitely in oversupply for both sports shoes and sportswear. Don't forget that sportswear also faces competition from casualwear ala Giordano, Baleno, Bossini, Hang Ten, Metersbonwe, H&M, Uniqlo etc.

All the shoe companies can see that apparel has better margins than shoes. So all the shoes companies are promoting apparel. They are just changing the game but the players are the same. Actually there are more players now since the pure casualwear brands are also in the game.

For sure the fat margins of the past will not be repeated. The executive I met confidently said they could sustain their 15-20% net margins. I guess he thinks they can do better than Nike and Adidas, who already have the strongest brands and highest prices. Nike's net margins are about 9%, Adidas about 5%. I personally think Nike and Adidas offer a preview of what the Chinese shoe companies' margins will eventually look like. The real ones, anyway.

The most recent news that Eratat decides to subsidize its retailers to change all retail shops to Premium
followed by
offsetting the subsidies from trade receivables

doesn't sounds well to me at all. There are definitely the optimistic ones who think this is a great move, but to me, this is a ploy to attempt reducing their mega trade receivables without any cash inflow. Why would you subsidize distributors who already owe you a great deal of money, especially if they can easily make tremendous sales if your products were that famous and good. It appears that extending trade receivables to 120 days wasn't sufficient to let the distributors cover their costs after more than 2 years in operation.


I was skeptical of this company 9 months ago, and I'm even more skeptical of it now.


*** Not Vested ***

I 100% agree with momoeagle. I note that there seems to be a great deal of positive narative on Eratat on another site (Next Insight) and I sense many fans of this company are overlooking the receivables issue and moreover how Eratat's management seems to address the matter, i.e. unconvincingly. My PRC friends tell me that for the money Eratat is asking for their togs, they prefer to pay a little more for what they consider to be much more exclusive western brands.

Not vested.

momoeagle Wrote:The most recent news that Eratat decides to subsidize its retailers to change all retail shops to Premium followed by offsetting the subsidies from trade receivables doesn't sounds well to me at all.

What a convenient way to make trade receivables disappear. Makes you wonder if they could ever be collected to begin with. The trade receivables as of 30 Sep 2011 are about 6 months of sales. Something is seriously wrong.

Looking at the before/after photos I don't get the sense that any meaningful amount of money is needed to renovate the shops - we are talking about some simple shelving for goodness' sake. This is not a restaurant where you need to install a kitchen, plumbing, ventilation and so on. Or a jewellery shop where you need to install CCTV, alarm systems etc and then still need to invest a fortune into inventory.

(23-11-2011, 04:14 PM)d.o.g. Wrote: [ -> ]

momoeagle Wrote:The most recent news that Eratat decides to subsidize its retailers to change all retail shops to Premium followed by offsetting the subsidies from trade receivables doesn't sounds well to me at all.

What a convenient way to make trade receivables disappear. Makes you wonder if they could ever be collected to begin with. The trade receivables as of 30 Sep 2011 are about 6 months of sales. Something is seriously wrong.

Looking at the before/after photos I don't get the sense that any meaningful amount of money is needed to renovate the shops - we are talking about some simple shelving for goodness' sake. This is not a restaurant where you need to install a kitchen, plumbing, ventilation and so on. Or a jewellery shop where you need to install CCTV, alarm systems etc and then still need to invest a fortune into inventory.

Yes, it is indeed a convenient way, to reduce the receivables without any requirement for cash inflow.

Assume books are true, it makes me wonder if their distributors are indeed earning enough to survive, so much so that subsidies are needed for some renovation?

Or are their distributors owing so much debt that Eratat has to do their bidding to "encourage" their distributors?

I have divested my share of Eratat too, I should have done it fully when they announced their unreasonable placement - but the share price had already then gone to 16ct from the 20ct i bought at and false pride and hopes kept me waiting.
Now im selling at 12ct with the hope that the hard lesson will bring me profit by investing more selective in the future!
I see now that their products cant be that good, because they 'discontinued' a good part of their distributors a while ago and did not get anymore.
If you have good products distributors will come to you and not leave, and you dont have to give the rest exceptional payment conditions so they stay!