Eratat Lifestyle

to borrow money on one hand and increase dividend or sharebuyback on the other hand is prudent?

Seem like div has given Eratat a good kick, to start the rally..

chinsoonyuen,

Please don't spread unfounded fear when you are not backing up your claims with facts and numbers. U are gradually pissing me off and my respect for u is gone.

who says with debt, increasing dividend and sharebuyback is not prudent. Reits are also highly geared and have high debts and are also giving bumpy dividends.

With or without debt, if the net profit after tax and interests continues to grow, I don't see why dividends can't grow as dividends are a % of net profit. Next yr dividend will be based on this year total net profit.

I am expecting net profit for Eratat to grow from RMB140 mil last year to at least RMB 165 mil minimum to RMB180 mil in 2013. And 2014 profits should be able to break the RMB 200 mil mark easily.

There are many examples of companies which issues debt to grow and eventually also reward back shareholders. Issuing debt is not the end of the world. The rich knows how to leverage by borrowing to grow their money...

And, for sharebuyback, why not? do a buyback at 13c to 15c and reissue the same shares back at 25 c one to two years later. Go and calculate the profits that is made.

Try find a company with net profit at SGD 20-SGD 30 mil a year with SGD 100+ mil net cash balances and is still trading at 10+ cents for me. Eratat is clearly an undervalued gem.

For eratat, it has the flexibility to grow via distributor franchise network and it doesn't need a big lump sum of initial capital investment to open shops as distributors use their own money to open the shop. (unless Eratat want to open their own retail flagship store). For sino grandness to expand and increase their net profit, it must reinvest its profits to boost its production capability and build factories, which is bad because if sino grandness needs lots of investments to boost its net profits, it means a huge % of its net profits are channelled into future investments and hence, there will be little left as dividends for its shareholders. On one hand, Eratat does not have this issue and its net profits add on to the growing cash balances.

My point that Eratat can still increase dividends and do a sharebuyback, even with debt, is certainly viable.

If u want to spread a fear and dismiss my point, please back it with maths and numbers.

I am trying to control myself to be as polite as possible. But it really gets irritating when u see repeated statements like that without much back ups.

chinsoonyuen wrote: to borrow money on one hand and increase dividend or sharebuyback on the other hand is prudent?

Please refer to this link

valuebuddies.com/thread-1167-post-56728.html#pid56728

a very good research by boon from Valuebuddies

Thank you

thanks for the link.

davidkie wrote: Please refer to this link

valuebuddies.com/thread-1167-post-56728.html#pid56728

a very good research by boon from Valuebuddies

Thank you

another article found by boon
www.ifrasia.com/eratat-seals-dim-sum-abs/21097640.article

Eratat seals Dim Sum ABS
IFR Asia 805 - July 20, 2013 | By Nethelie Wong

Eratat Lifestyle has completed a Rmb134m (US$22m) securitisation in the first private placement of asset-backed securities in the offshore renminbi market.

The company placed Rmb134m of 12.5% bonds with 82.5m warrants to SWAT Securitisation Fund, a SPV of Sun Hung Kai Financial. SWAT, in turn, offered a Rmb106.8m senior tranche of ABS to investors and a Rmb27.2m junior tranche to Sun Hung Kai Financial.

The Singapore-listed apparel-maker is paying an annual coupon of 12.5% on the two-year bond, issued at 74.44. That translated to a hefty yield of over 30%, leaving plenty of room for a securitisation transaction.

However, the interest rates on both the senior and the junior ABS tranches were not disclosed. The exercise price is S$0.25 for each warrant , which represents an 85% premium to July 15’s share closing of S$0.135.

Proceeds will be for expansion. Eratat’s gross profit ratio was at around 18.4% for 2012.

Rival bankers saw the deal as a high-yield structured product rather than a proper ABS as the bankruptcy-remote and the relatively low interest rate features are not significant in this case.

The bond has a charge over 121,525,000 shares in the company directly and indirectly in the hands of Lin Jiancheng, the company’s CEO. The shares represent approximately 25.59% of the existing issued share capital of the company.

The transaction was the combined result of the sudden liquidity squeeze in the onshore market in late June/early July and a reverse enquiry from high-yield investors chasing yields.

The reason the warrants were bundled into the bonds was that the company’s share price had hovered at lows recently and it would have been very unfavourable to existing shareholders if convertible bonds had been issued instead.

As for the use of the ABS structure, it was to boost the confidence of investors in buying into the deal as Sun Hung Kai Financial is retaining around 20% of the transaction as a junior tranche. Sun Hung Kai Financial acted as arranger, as well as co-investor, on this transaction.