Background: Listed on the Singapore Exchange since April 2008, Eratat Lifestyle is mainly engaged in the design, manufacture and distribution of lifestyle fashion footwear and apparel, marketed under its proprietary brand, ERATAT. Its products are sold in more than 900 speciality shops across China.
Recent development: We recently attended Eratat’s 3Q11 results briefing. Net profit was up 9.7% YoY to RMB48.3m despite a slight revenue decline of 3.8% due to fewer distributors during the period. In addition, gross margin improved by 2.3ppt to 34.5% because of positive sales contribution by higher-margin apparel and an increase in ex-factory ASP of its products.
Key ratios…
Price-to-earnings: 2.2x
Price-to-NTA: 0.35x
Dividend per share / yield: RMB0.03 / 5.0%
Net cash/(debt) per share: S$0.07
Net cash as % of market cap: 61.3%
Share price S$0.120
Issued shares (m) 474.913
Market cap (S$m) 57.0
Free float (%) 63.0%
Recent fundraising activities April 2011: Private placement of 60m new shares @ $0.202/share
Financial YE 31 December
Major shareholders Lin Jiancheng (25.3%), Ye Sanzhi (6.8%)
YTD change -50.0%
52-wk price range S$0.117-0.27
Our View
Cash conversion cycle extended. Starting last year, Eratat allowed its key distributors to set up more direct-owned speciality shops and strengthen their individual distribution network. To support its distributors’ growth expansion which typically requires a high initial investment outlay, the group offered longer credit terms. Management said it has not experienced any default so far under this model, as it is usually very selective when it comes to the appointment of its distributors.
New order wins. Separately, Eratat said that it has received confirmed orders amounting to RMB380m during the August trade fair, of which about 37% are for ERATAT Premium products (vs 8% last year). Delivery is scheduled for between January and June next year. We also note that the 2012 Season sales mix of footwear and apparel will be about 25% and 75%, respectively (2011 Season: 51% and 49%, respectively).
Enhance ERATAT brand positioning. Given the encouraging market response after the launch of its ERATAT Premium product range in 2Q11, the group plans to upgrade most of its existing retail shops (currently, about 20% tout the New Premium image). It will support the distributors’ efforts to upgrade their older shops by providing renovation subsidies through offsetting against their trade receivables.
Victim of S-chip confidence woes. The stock currently trades at a cheap valuation of less than 2x FY11 PER, based on consensus estimates.
No comments:
Post a Comment