Forum users should check out momoeagle's analysis on NextInsight's forum:
http://www.nextinsight.net/index.php/for...?start=972
"I am ok with their 120 days credit, although the ideal credit should be about 90 days. "
We have to be clear here. It is not whether you are ok a not. You have no choice.
Even if they tell you tomorrow that their credit days will be 240 days, you have no choice and no control at all.
"Momoeagle, u hv been criticising abt the trade receivables. In ur opinion, what do u think is the ideal credit days should give to the distributors?"
We need to be clear here too that my main criticism is not the credit days, but the relative size of the receivables, which is why I mention it in percentages.
Simply put, credit days for receivables can be easily reduced by rolling over the credit. E.g. I pay off $100 of receivables that are 150 days old, and buy $120 new products at credit, so that my receivables start at 0 days again. Hey credit days are reduced!
Look at this, this is a company that tells you it has so much assets (RMB 1 bil), but 57% of it is in receivables! Like wow!
"Eratat has been gg through transformation for the past two years to a men casualwear. It is taking the right steps so forget abt the past years. The good years for eratat are coming as they hv position themselves strong to undertake their next major expansion."
Find me a listed company that won't tell you
1) we are operating in a challenging environment,
2) we are well positioned to _____[Insert optimistic goals]___, and
3) we will emerge stronger in the long run.
At worst, it is about profit warnings [Note the words, not losses], but every one is always confident in the long run.
Yes, in the long run.
And in the long run, we are all dead.
And operating in a highly competitive industry, and in a country called China rampant with cheap clothing manufacturers that could be of high quality as well...? What are the odds of a premium Made-In-China clothing manufacturer succeeding? In my opinion which is of course extremely subjective, I say extremely low.
"Give eratat time, the receivables issue will slowly be taken care of, as i understand the management would also prefer to issue shorter credit days. What is imptly is profits n cash are growing so we can ecpect dividends to multiply."
Given time, they had successfully reduced some receivables by a generous renovation subsidy and sales incentive. And actually convinced many about it. What an excellent track record!
Given such cheap funds available worldwide due to low interest rates environment, this is a company that had no choice (in the CFO's words) but to borrow at such exorbitant rates.
Furthermore, given 9 cts share price vs 23 cts net cash per share (saw it somewhere in the forum), the company could actually privatize itself at 11.5 cents, and earn an instant 100% gain. What is stopping them from doing that? Does anyone really think they care so much for the investors that they won't do that so that they can expand the company for you? Yes, I'm being very skeptical here.
And also:
http://www.nextinsight.net/index.php/for...?start=978
Let just say I stop short of talking about any fradulence. High receivables is already a potential red flag on it. And I have not even touch on the director selling all just before the price goes down.
"In business which company do not face receivable issue"
Find another business that has greater than 50% total assets in receivables.
"do not face steep competition"
SGX, in buying of local stocks.
Local telcos, in an oligopoly
"Borrowing at high interest rate seems no choice in the PRC market"
Yeah, Net Profit Margin of 13.72% but borrow at 16+% and effective annual interest of 32%. "No choice" but to borrow indeed.
Locally, if we borrow $$ to buy stocks, the riskiest of instruments, even if we use our cash as collateral, the loan percentage is 6% and the quantum is three times the amount we put up as collateral or two times the value of stocks put up as collateral. Eratat has >500mil RMB in cash, yet they have "no choice" but to borrow 100mil RMB at 32% interest. This "no choice" seems to make sense to some people, but it certainly does not make sense to me. Seems like something that doesn't make sense can actually be brushed off with a simple reason of "no choice".
Yep, I guess I am really damn stupid and missing a gem in this company.
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