Eratat Lifestyle

[safetyfirst]

Always tempted to look into this company since management has been open with IR meetings and fashion show. But I think the lesson learned for me is to always look at the company wearing the owner's hat.

Balance sheet is rich with cash and valuations are so low yet there has been no insider purchase while management is trying to convince the public that things are going to be better. Yet, they need to raise bonds at illogical rates with SHK.

I think the current issue is not as simple as it is. It has been 1 month since the last interest payment in Dec 2013. Management is not stupid. If the company's cash is real, they would have done all they could to get the cash. Now SHK is calling for full redemption.

When things doesn't square, it is always better to walk away.

Sometimes i think it is very important to exercise common sense during investing. For example, if the company is flooded with cash, the share price is trading below net cash per share, and the company is not taking action to do share buyback, then it is an obvious red flag... but many people choose to ignore it. Poor souls, i hope nobody in this forum got caught in this leaking boat

[arriyana]

Generally in Singapore, it is true that cash balances are the easiest to verify and one of the safest asset accounts as compared to say, accounts receivable.

Problem is in China, bank statements don't hold the same level of quality as in Singapore. If you were to read the statements by audit commitee of Eratat, it seems like Eratat holds a lot of cash in the subsidiaries. On the consolidated statements, you do not see the breakdown usually. With excess cash in subsidiaries, what frequently happens is kiting of cash where the company move cash around to fill up the holes during audit process. As auditors and banks dont confirm the cash at the same time, there is a time lag to cover the gaps.

An even simplier way that happens in China is simply the company colludes with the bank managers. It happened several times.

[minimax]

Mr. Market can sometimes be very inefficient. This stock was trading at $0.13 even after news of it having to issue debt with effective interest rate of 30% broke in July 2013.

Common sense would tell you that there is no way a company with about RMB 500 million in cash on hand would resort to borrowing RM 134 million at an effective interest rate of 30%.

[HitandRun]

If fraudulent behaviour is uncovered at Eratat, besides the perpetrator of the fraud, who should be criminally sanctioned as well?

1. CFO
2. Internal Auditors
3. BOD
4. External Auditors
5. Somebody else
6. All of the above
7. Nobody

[touzi]

Absolutely true. But that is partly because we don't have a strong shareholder culture here yet were shareholders demand for their rights. Unlike States where activism is strong, the companies are more wary of it.

I hope we do not learn the wrong thing from the Americans. Shareholders there are too focused on short term result and that has a big (and negative in my opinion) impact on management behaviour.

[touzi]

If fraudulent behaviour is uncovered at Eratat, besides the perpetrator of the fraud, who should be criminally sanctioned as well?

1. CFO
2. Internal Auditors
3. BOD
4. External Auditors
5. Somebody else
6. All of the above
7. Nobody

What is the liability of the ID? Eratat has very experience Singaporean ( or perhaps Malaysian ) ID's on the board.

[minimax]

As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

[wahkao]

As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

[minimax]

As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

You mean Eratat is worth more than last traded price of $0.1?
How did you arrive at such a conclusion?

[kelvesy]

As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

I think it is clear that there is something amiss with Eratat Lifestyle. With a huge cash balances, there is no need to issue debt instruments or borrow. When possible fraud is involved, there is no way to ascertain the value of the stock, and it is best treated as $0. And avoid it at all cost. So, Eratat is actually overvalued.

In other note, SIAS credibility has been hurt by this scandal. It awarded Eratat as runner up of the "Most Transparent Company Award 2013". Can we know based on what set of criterias?