Face to face. We invited Eratat down for our weekly corporate focus
series. Management shared its latest 9M10 results as well as the
company’s growth plans going forward.
• Allaying concerns. During the Q&A session, questions over Eratat’s
financial position came in fast and furious, as jittery investors were
concerned following the recent auditing fiasco at 2 S-chips. Management
reassured investors over Eratat’s cash balance, accounts receivables
quality and collectability.
From a valuation standpoint, I think it's clear that Eratat is very undervalued. The management has also done a great job in increasing both revenue and margins to double net profits over the last 2 quarters. However, from a top-line growth standpoint, does anyone here think that although the management is doing a good job, it is still relatively conservative?
Don't get me wrong, annual revenue growth in excess of 20% is still impressive but a few years back when the likes of HK-listed gigantic peers such as Li Ning, Anta, 361 Degrees and China Dongxiang were growing aggressively, they were all managing annual revenue growth of about 100% or even more to become the stalwarts that they are today. Does anyone think that Eratat should be striving to be as ambitious as they were?
When we look at PE, we also want to look at PEG. Eratat is doing extremely well from the PE perspective but I think if they can manage to grow more aggressively, it would be key to taking the stock price into the next level - multiples of what it is now.
As good as 20% topline growth may be, I would like to see the management striving more aggressively to increase revenue, and perhaps Eratat Premium and the entrance into tier 1 cities will be the gateway to this.
Last edit: 13 years 8 months ago by ethan999. Reason: Grammar
different schools of thought here - and different risk appetite.
Steady grower
vs Rapid opportunist ? Which one for you?
Steady grower is Eratat - the sort you can sleep well with.
Too fast and the stock price may jump , sure, on the other hand , if business climate turns against you, the leverage and the high exposure can kill you.
That is quite a wild idea. Eratat tried to place shares at the current price, which was a 9.99 percent discount to the average price then. Eratat is currently at 4.8 time TTM PE and 0.8 times PTB. IMO, the placement was priced too cheap considering that the subscribers may be be getting net cash per share. So far, most recent placements on the SGX are at a premium to weighted average price. If buying from the open market would drive price up, placing shares at a 10 percent premium or par value, should not be too harsh a term.
Companies that are shareholder oriented should be looking at finding a competitive edge or returning cash to its shareholders, rather than re-IPO. The latter suggest that management is thinking of the proverbial stage.
If the company gets taken over because it is too good a investment proposition, then pity those shareholders. SPC is an example how even the offer price by PetroChina might pale in comparison to the market price if SPC continued listing.
So far, S-Chips that have de-listed and re-list elsewhere do not manufacture shoes or textiles. Sihuan and Man Wah are examples, Want Want can be included if you want to stretch the definition of an S-Chip. It is unlikely that shoe or textile makers will buyout and re-list.
[hr]
[Harl 06-03-2011]:
How about a wild idea? Eratat and a private equity firm decide to gang up and delist the company from SGX at 6X PE, which is 44 cents?
Then they re-IPO it in HK, or Taiwan with valuation of, say, 8X - which is 56 cents....
Interesting hor?
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