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Saturday, 12 April 2008

China Eratat Sports Fashion Limited

China Eratat Sports Fashion Limited is a "leading" branded sportswear enterprise based in Fujian Province, PRC. It is engaged in the design, manufacture and distribution of sports footwear and sports apparel under the "ERATA" brand. As you can see, the Company has "spared no efforts" in trying to convince the public that it is a "leading" brand. The IPO will close on 15 April 2008.

The Company is issuing 163m shares where 124.88 m shares are new shares and the rest are the pre-ipo vendor shareholders that are cashing out. The genuine pre-ipo investors' cost is around 22.5 cents (versus the IPO price of 30 cents).

The Company generated sales of RMB 286.4m and net profit of RMB40.6m for the FY2007. FY 2007 being 31 March 2007. In other words, the Company had just ended FY2008. The EPS based on post invitation share capital for FY2007 is RMB 9.79 cents or Singapore 1.94 cents. The 1H2008 grew by around 25% in terms of revenue and net profit compared to 1H2007. Assume this growth rate for the full year, FY2008 revenue will be around RMB 358m and net profit will be around RMB 50.8m. The EPS will be around RMB 12.23 cents or Singapore 2.43 cents. Based on the IPO price of 30 cents, this means that China Eratat is valued at 12.3x FY2008 EPS.

Peer Comparison

Revenue for China Hongxing is around RMB 2.87 billion and net profit of RMB 525m for FY2008 (31 Dec 2008). EPS is around 3.6 cents based on DBS research report. Based on today's share price of 61 cents, that imply China Hongxing is valued at around 16.9x PE. However, a premium is warranted as China Hongxing is such a giant compared to China Eratat.

China Sports's estimated revenue for 2008 will be RMB 1.659 billion and net profit will be RMB 222 million. Again this is a much bigger company than China Eratat. The EPS for FY2008 is estimated around 12.8 cents (source: DBS Securities) and at 91 cents today, it is valued at 7.1x PE.


With a bigger and better rival trading at single digit PE of 7.1x, there is no reason for China Eratat to be priced at 12.3x PE and with all pre-ipo vendors cashing out at 33.3% return over their cost, investors would be better off buying the shares of China Sports. China Sports offer better over both China Hongxing and China Eratat. My advice is to avoid China Eratat on valuation basis and dont be distracted by the big IPO booths or Michelle Chia (who appeared at the IPO booths).


Dhenz Nogara said...

An outstanding share! I have just forwarded this onto a friend who has been doing a little research on this. And he in fact bought me lunch because I stumbled upon it for him... lol. So allow me to reword this.... Thanks for the meal!! But yeah, thanx for spending the time to discuss this topic here on your blog.sbobet online

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