Eratat Lifestyle

Eratat Lifestyle: New distributors likely to be strong catalyst. NextInsight note that China is slowly changing its reliance on exports to focus more on domestic consumption. One such co which may be able to ride on this domestic consumption story is Eratat Lifestyle. Note that Eratat has been in talks with new distributors via their 100% owned subsidiary in Shanghai. Discussions have been ongoing for a few months and they are likely to materialise this year. However, any impact is likely to be seen in 2HFY13F and (perhaps) more so in FY14. This is likely to be the strongest catalyst for the company. Add that Eratat is in the right industry and based on China’s macro outlook, the retail industry is likely to ride on the wave of domestic consumption and do well over the next couple of years. Both grp’s CFO, and its investor relations personnel, have been active in doing IR activities.Unlike other S chips which may be discouraged (due to their low company share price despite their efforts) and stop meeting investors, the Eratat duo have been actively engaging the investment community despite their low share price last year. Eratat has no outstanding loans and according to the management, they do not have any bad debts on their accounts receivables for the last five years. For the net cash of 15.7c/share, it is noteworthy that the net cash fluctuates. They are usually lower in 2Q and 4Q as a significant amount of cash would be placed as trade deposits to their apparel manufacturers to secure delivery of their apparel products. Eratat has surged 74% from the low of around $0.080 in July – Sep 12 to $0.139 on 18 Jan 13. However, its valuations do not appear to be excessive. It trades at around 2.3x FY13F PE. NAV / share is approximately $0.355. Estimated yield is 3.0%. SIAS covers this company with a one-year target price of $0.240.