Hi UB40,
I agree with you on the assessment:
at current price, margin of safety has certainly increased significantly,
1)If one thinks it is still overvalued, do not buy
2)If one has doubts on the business, do not buy
3)If one has better counters to buy with better returns, do not buy
4)If one understands the business and has great conviction that it is undervalued, buy
I fall under 2) and you under 4)
I ask this with good intention and sincerity.
What gave you the conviction?
-> Is it the business model?
-> Is it the numbers? (Whatever numbers you can get from the financial report?)
I know Boon from valuebuddies work in China at times, and he visit the shops, look at the recruitment activities going on in the newspaper and such.
Did you do such legwork? It is extremely important since it is a S-chip, and its a S-chip with red flags, so it is extremely important to get the info from various sources, it could be your own legwork or you can work in the industry or you know the competitor well, etc.
If you have information besides the "paper numbers", maybe you can kindly share them.
Paper numbers might suffice when you are dealing with companies such as SPH, where you can see for yourself the amount of advertisement, or perhaps property developers in Singapore. BUt we are dealing with s-chips, China's culture of business might not be the same as in Singapore.
I will be very interested indeed, if you have some information for your conviction, perhaps, you know one of the distributors, etc.
Understand that business plan, numbers are just a paper when there is doubts, no point returning to the paper, U need real info from real sources.
Seriously, I have no problems with their business plan, I understand why they need so much cash and given the phase of growth they are in, they could operating at negative cash flow for a while. i am fine with that.
Neither am I concerned about valuation, it is darn cheap if you use valuation such as PE, PEG, cash even after capex.
But I cannot fathom the SHK deal, cannot understand why YSZ sold out in 1 shot, not over a period of time. I cannot understand why it is taking so long to get the distributors they mention 2 years ago, cannot understand why they stop giving orderbook figures for lame reasons that they are roughly the same, I dun understand why they and their competitors dun tell consumers where their shops are.
However, I never say never, if they start addressing some of the concerns, they start showing distributors, they start showing where the shops are, who their distributors are, and there are info from the distributors' websites that I can cross-checked with Eratat figures, I start seeing shops when I visit china, i would buy. I visit Nanjing, Suzhou, Hangzhou, Shanghai, Beijing major shopping belts over the years, I have no problems finding xtep, Anta, Li Ning or some of the more renowned brands, not once did I find Eratat. (i know Eratat is not big compared to the big boys, but not even 1 shop in the major shopping belts beside shanghai?) I Know Boon mention he saw a number of shops opening in Shanghai, that actually really get me tempted to buy at 8 plus cents, then YSZ come and spoilt my appetite.