I recently asked their head of Investor Relations, Ms. Kellyn Tan the following:
"Considering that you already have 32 million SGD in net cash, which amounts to roughly one-third of your current market cap, why is there a perceived need to raise cash by diluting the shares merely to raise another 8.7 million? Shouldn't the management first decide how it wishes to use the 32 million SGD in cash before it decides that there is need to raise more cash by diluting the shares at such a low price? "
This was her reply:
"I will try my best to explain as simply as possible (in point form) on why we need to raise more cash for expansion. Let's start from the beginning:
1) We held trade fair bi-annually for distributors to place their order. It usually occurs in March/April for Autumn/Winter Season for that same year, and August/September for Spring/Summer for the following year.
2) Once orders are taken and confirmed, we will start to purchase raw materials for footwear and secure raw materials and production slots for apparel (note: we manufacture footwear but apparel is 100% outsource, meaning we do not manufacture apparel).
3) During this period, a large amount of cash is needed especially for apparel because:a) It is our business strategy to sell more apparel as they command higher margin.b) Our OEM manufacturers are of high quality who manufacture high-end international brands. These big brands usually have very high volume, therefore in order to get preferential treatment, we have to pay very high deposit. Upon receiving these goods, almost about 80%-90% are paid and the rest is on 30 days credit.
4) Currently, we are encouraging our distributors to directly own more specialty shops, hence they require a huge amount of working capital. We do not own any shop and do not subsidise our distributors on their set-up costs. But we selectively grant longer credit terms (90-120 days) to few good performing distributors, meaning:
a) They have been with us for at least 3-5 years.
b) They have been good paymasters.
c) They have been expanding the number of shops own directly by themselves.
d) Their sales have been increasing over the years.
e) Their sales / after-sales quality has met our standards *All our distributors are exclusive, meaning they only distribute / sell ERATAT brand products.
Conclusion, we are paying early and collecting later, therefore SGD32 million is considered insufficient if we want to further expand our business, given that we just launched our new high-end "ERATAT PREMIUM" during first quarter this year. This high-end products will be located in 1st tier malls / cities in China. The production cost for these high-end series are of course at much higher price as compared to our classic range.
Therefore, we will need these fund for our expansion.* ERATAT PREMIUM retail price from RMB300 - RMB7000 per piece / pair.CLASSIC retail price from RMB300 - RMB1000 per piece / pair I hope the above answered your concern.
Regards,
Kellyn TanVP - Investor Relations Eratat Lifestyle Limited
Email: kellyntan@eratatgroup.com
Website:
www.eratatgroup.com
What this tells me is that Eratat is expanding aggressively, so much so that the 160 million RMB it has in cash wouldn't be sufficient. I have my own views and I am not here to debate this so make of this what you will. I just wanted to share this on this forum.