One cannot be stubborn with stocks. If you go by fundamentals, then you got to stick to that. Never fall in love with a stock.
I have to say I agree with Greenrookie on Eratat unfortunately. Things were very promising until the news yesterday which really dropped a lot of bombs on investors. Contrary to all expectations, order book has dramatically decreased in a time of consumption growth in China. Not only have receivables grown in quantum and length, they will now even have to be providing subsidies to distributors to renovate their stores. Cash flow performance was once again very poor considering it’s Q3.
I thought that they said their retail stores are performing well. If they were truly preforming so well, the distributors would all be making nice profits and grabbing the chance to sell as many Eratat products as possible and Eratat would not have to be granting so many concessions to them in the form of receivables and subsidies.
Furthermore, they’ve been going on for years now saying that they were extending credit to distributors to encourage them to upgrade and directly own their stores – as an investor I was hoping this entire process was already nearing completion so that they could bear fruit. Instead, they drop another bomb that they will now not only have to be extending receivables but subsidies as well.
I have sold all my holdings in Eratat today and made quite a bit of losses but hopefully the losses will be outweighed by the better performing stocks in my portfolio. A stock is not a romantic partner. One should never fall in love with a stock and hold on stubbornly through good and bad times. It’s no longer a surprise to me why Eratat directors have not been buying despite the incredibly low valuations we’ve seen over the last few months. After the news yesterday, we now know why.
For Eratat, it looks like it's downhill from here.
wow, very convincing post..
U guys addressed my deepest darkest concerns about Eratat... Mainly, trade receivables..
However, i wish to add a lil optimism in case everyone goes and sell the share on monday when market opens (Cos im still holding on to it.)
So far, according to the unaudited financial statements, cashflow has been positive throughout the year (Save q3, where there was an outflow). And Cash balances has been increasing steadily.
But i agree, trade recievables does have an extremely worrying trend going on..
Maybe some light can be shed on their policies about how they collect their trade receivables to make investors more confident about what's going on.
Cheers~
Give excuse for longer credit term because they don't have to subsidies renovation.....now use excuse to grow the business to give $$....M I confused or the management are confused?
here's some points generated from the Q3 briefing:
1) The renovation subsidy is meant for the CLASSIC shop, not the PREMIUM shop. The classic shop needs to be renovated because need to make it more spacious as they plan to increase the % of apparel sales over footwear sales. The logo of the CLASSIC shop also has to change and if i rem correctly, they may take out the chinese logo and just use the silver eratat eng logo.
2) The PREMIUM shop is currently doing well, according to the feedbacks I gt from Ken and some of the people whom have visited the shop in shanghai.
3) Regarding growth prospects, Ken said that Eratat growth has been consistent, usually it is one sharp growth (e.g when new products launched and /or when Eratat transforms its positioning - from sportswear to sportswear fashion, then casual fashion and then now the PREMIUM), followed by a gentle, slower growth and then cycle repeats. Growth next year is expected to be a bit slower but we did question the management whether they can maintain at least a 10% growth or achieve at least EPS of SGD 2 cents and above every quarter. Ken says they will do their best to achieve that result.
4) Eratat is currently going for quality margins and quality distributors as opposed to quantity margin and quantity distributors. Though the book order for spring summer decreased, in 2011, contribution of footwear and apparel are 51% and 49% respectively whereas book order for 2012 for footwear and apparel are 25% and 75%. though revenue may be expected to drop, the higher margin from the apparel will offset. Ken stress that it's the profitability level (the margin) that is more important than the revenue.
5) As for cash, I was expecting end of Q3 to have at least 200-250 rmb million+ but it did not. I did question Ken on this. He said that as some of the older classic shops were doing for renovation, some of the credit has been extended to 121-150 days. But tat's why at end of Q3, cash balances stand at 170+ million. But those credit due in Q3 that has been extended to 121-150 days has already been collected by now and according to ken, their cash balances now have over 200+ to around 250 million rmb. Ken say they would limit the max credit to 120 days and therefore intro a one-time renovation subsidy for their distributors upgrading their classic shop. They are in the process of finalising the renovation subsidy.
6) Someone asks since Eratat did qualify for dual listing in HK, why don't go for dual listing to improve the valuation. The answer given is still the same. Management prefers to focus on the business and the operation.
as for book order next yr, the good thing is the PREMIUM order has increased substantially. Plus, their classic shops now will be undergoing renovation and all renovation is expected to complete within 1st half of 2012. that's why that affects the decrease in the book order. Who knows. if next year, if more quality distributors come on board, then we can expect another big strong growth again. if they can maintain SGD 2 EPS per share quarterly, that's already very gd liao.
Hope this stock turns out to be a bagger..
The trade receivables demand alot of faith out of existing shareholders to hold, but i believe we're in no position to tell them how to run their businesses..
Hopefully policies can be make known and enforced is all i hope..
NextInsight
a hub for serious investors
)
