hope this will be the last pt i made for the receivable.
"Curbing revenue growth doesn't sound all that great. Margins don't increase substantially."
- Think:
1) If they don't extend credit beyond 90 days, how to get distributors to work with them to open shops?
2) if raise revenue and book order, so long as credit remains above 90 days, receivables will continue to increase every quarter release. And, when receivables rise, investors also complain.
3) if set a cap on revenue but focus more on margin, it will reduce receivables over time. But investors also complain and worry about growth.
so, 1), 2), 3) - either way also wrong and got investors worry here and worry there. U tell me how u can reduce receivables, yet increase revenue and margins, yet the distributors are willing to put cash in to open new shops? momoeagle, if u are the CEO, tell me how u can achieve all the three things? what strategy can u implement? The distributors only have limited cash. They also need to pay labour and salary, so do Eratat as well. if u got good suggestions, pls suggest it to the management. And, in china, it's hard to borrow money due to high interest rates.
it's like our famous Cheaper, Better and Faster rally call from our labour union. Tell me how one can achieve all three things at one go.
Premium just newly launched and individual apparel piece of orders are not large. Naturally, the higher cost will offset the higher price. Wait a while. as no of apparel shops increase, orders increase, as it scales up, average costs will drop. actually, for 38% to 42% of gross margin for an apparel is already very good. Outside international brands, also gt around that gross margin. u can't expect 60% to 80% gross margin for apparel bah. while footwear drop, overall gross margin will increase. that's the most impt.
There's always uncertainty in every business or investments. just wait for them to finalise the discussion lah. I trust they will do their best to negotiate a good subsidy for the interests of the long term business.
ever since Eratat got IPO, they only do placement once lol.
I don't like telco industry. it's just service provider and margins are not good, though it's a stable stalwart. both starhub and singtel this quarter gt profit drop.
check this:
www.nextinsight.net/index.php/story-arch...-28-in-2-days-on-maa
“We believe the fact that the mass market is crowded due to a low entry barrier among the sportswear segments prompts us to believe Xtep is more vulnerable to the current deteriorating industry environment.”
- come to think of it. Lin jiancheng is a visionary CEO. Eratat has been evolving and fast responding well to the industry changes. if nt, they would hv followed the footsteps of XStep. The CEO already foresees this few years back and hv been making quick adjustments to their strategy.
[hr]
[momoeagle 10-11-2011]:
Hi newbiestock,
there are a few questions I would like to point out on your conclusions:
"I already expected trade receivables to increase. My opinion is Eratat is deliberately trying to curb revenue growth and trying to increase its margin by offering a higher apparel product mix, so that its receivables can be capped at a certain level for next yr."
The important consideration isn't your opinion, but whether if that is the management's plans and directives. No point second guessing on uncertainties as you aren't a controlling shareholder at all.
Curbing revenue growth doesn't sound all that great. Margins don't increase substantially.
Furthermore, they are planning to offset some trade receivables with subisidies on renovations?
How many shops are they going to upgrade? How much are they going to subsidize?
Let's do a rough estimate:
Num of shops to upgrade: 1000 (as per AR2010, more than 1000 retail shops. 2011 was supposed to have growth isn't it? So 1000 is a good estimate.)
Cost of renovation: Est 0.5mil RMB (Abt $100k SGD, which is quite cheap for a big floor space. But this is China, so I gave some discount.)
Total cost of renovation: 500mil RMB
A subsidy of 10% will give around 50mil RMB, and hey presto! 50mil RMB taken off trade receivables!
An even higher subisidy to give HUGE support and a BIGGER encouragement to the retailers would be nicer of Eratat right? What's the advantage? Even larger reduction in trade receivables! That would make it the best of both worlds!
What's the cost? A reduction in reported NAV! How? Simple, explain it off again that these subsidies are needed for future growth! And more growth! And more growth! The question is, till when?
There are just too many questions and uncertainties that I seriously believe the risks are not worth the rewards. And I see no point in explaining for the management; they should be the one addressing, not you or me. :x
"It takes time for execution to show. When u launch a new product, expect at least a year or slightly more to see result. btw, all stocks are down due to the poor macro sentiment. Not just eratat."
Not all. Telcos aren't really down much.
Anyway, this isn't any reason not to consider the possibility of major shareholders exiting on the quiet because of internal events.
"Why not? Young company needs time to grow and for the execution to show result. It can't happen overnight. PREMIUM is just newly launched. Eratat needs to rest and consolidate as well after an explosive growth in 2011. After enough resting, it will grow explosively another time again. When the explosion comes again, that will be the time that Eratat shows another big jump in share price."
I don't see Eratat as having grown at all in 2011. Most of the asset growth comes from substantial increase in trade receivables, which should be treated with due caution.
BTW, for others, I'm not vested.