I like China consumer stock. Names like Hongguo, China Hongxing and Synear food are inside my portfolio. The emerging middle class and progressive increase in country wealth would increase the consumer spending power. These companies are good buy for long term, as they capitalize on their strong brand name to capture the market.
At the same time, I would avoid investing in second tier consumer stock. How do I classify them into second tier? I remember I read some analyst reports previously regarding company produces the intermediate goods for consumption. Analyst would claim there is a growing demand and bright industry outlook, hence a good buy. Sometime when you tell a story, you tend to emphasize more on the bright side. When time is gloomy, people tend to focus on the downside more.
As the demand soar, indeed they are getting good business, but don’t forget the supply side! For intermediate producer, you source the raw material and make into intermediate product. This good is sold to the end manufacturer which piece them together to produce the final good. The commodity bull cycle is squeezing the margin for these players. Very often, in the middle of value chain, there is a limit on how much you can pass on the cost. If you are really big player, you pass on all the cost increase, then your margin won’t be affected. What if you are not that strong?
For the first tier or end consumer company, I would think the situation is much more manageable. That is because you own the brand. If you are a big industry player, most of the time you can squeeze your supplier to lower the cost. If your brand is strong, you can pass on the cost to end consumer. There are also other ways of passing the cost on, like decrease the weight a little and repackaging. Of course, I sound too simplistic in these arguments. But I really think that they have better bargaining power. Go to the local supermarket to do a comparison. Price of same goods from different brand might vary a lot. However, the more expensive brand does not go out of business!
Companies like China Sun, Luzhou, Celestial didn’t have a good year because of the dramatic cost increase. Celestial does have its own strong brand, but it also has industry soy bean processing. The fiber player like China Sky and Fiberchem did amazing well to defray the oil price increase. Soft packaging companies also had a tough time because of the oil.
However, every company’s situation is different. It doesn’t mean by stereotyping the company, it is not worth the investment. We have to analyse the company on case by case basis to understand the growth driver and business prospect, in order to arrive at a conclusion.
Wednesday, 30 April 2008
Tuesday, 29 April 2008
Hongguo FY08 Q1 result
Figures are provided for Q1
Revenue +27.32%
Gross profit +34.38%
Selling and distribution cost +66.09%
Net profit +16.06% at 34m RMB
If not the substantial higher selling and distribution cost, this would be another good quarter. Compare to last full year result, it is showing sign of escalation. It is not discussed in the result announcement that what is the significant contributor to this cost increase. Are they promoting the brand more aggressively or the rising inflation in China significantly lift the cost?
Cashflow remain strong, but trade receivable increased. Gross margin increased to 41.61% which generally signal the brand position. The group expansion strategies have remained the same
1)Retail store expansion
2)Multi brand strategy
It is yet to see whether the cost would go out of control. Looking at the Q1 growth percentage of 16%, let's assume full year would be at the same rate. The forecast EPS would be 0.32 RMB. Today it closed at 0.52, which means trading at forward PE of 8. Still consider cheap, but I would rather wait to see the cost trend. However, if the general market improves, it might still fly.
My china friend said he saw mainly Daphne stores in the cities he visited. Hongguo still has a lot of catch up to do.
***Updated 30 Apr 2008
Some comments from analyst.
DBS:
Maintain BUY, TP S$0.94 based on 12x FY09 PER.
DMG:
The Group’s strategy for growth is to continue expanding its sales network. Hongguo plans to set up 200 new outlets for C.Banner and E.Blan, and 40 new outlets for Naturalizer by 4Q08. Coupled with a stronger design capability and greater production capacity, revenue is expected to continue to grow. We maintain our BUY recommendation for a target price of S$0.60.
Westcomb:
Maintain BUY with target price of S$0.82 – HGUO is currently trading at S$0.52, a historical FY07 P/E of 9.6x. We consider HGUO to be relatively undervalued as compared to peers China Hongxing Sports Ltd (CHHS:SP; P/E of 16.7x) and Li Ning Co. Ltd (2331:HK; P/E of 45.3x).
Revenue +27.32%
Gross profit +34.38%
Selling and distribution cost +66.09%
Net profit +16.06% at 34m RMB
If not the substantial higher selling and distribution cost, this would be another good quarter. Compare to last full year result, it is showing sign of escalation. It is not discussed in the result announcement that what is the significant contributor to this cost increase. Are they promoting the brand more aggressively or the rising inflation in China significantly lift the cost?
Cashflow remain strong, but trade receivable increased. Gross margin increased to 41.61% which generally signal the brand position. The group expansion strategies have remained the same
1)Retail store expansion
2)Multi brand strategy
It is yet to see whether the cost would go out of control. Looking at the Q1 growth percentage of 16%, let's assume full year would be at the same rate. The forecast EPS would be 0.32 RMB. Today it closed at 0.52, which means trading at forward PE of 8. Still consider cheap, but I would rather wait to see the cost trend. However, if the general market improves, it might still fly.
My china friend said he saw mainly Daphne stores in the cities he visited. Hongguo still has a lot of catch up to do.
***Updated 30 Apr 2008
Some comments from analyst.
DBS:
Maintain BUY, TP S$0.94 based on 12x FY09 PER.
DMG:
The Group’s strategy for growth is to continue expanding its sales network. Hongguo plans to set up 200 new outlets for C.Banner and E.Blan, and 40 new outlets for Naturalizer by 4Q08. Coupled with a stronger design capability and greater production capacity, revenue is expected to continue to grow. We maintain our BUY recommendation for a target price of S$0.60.
Westcomb:
Maintain BUY with target price of S$0.82 – HGUO is currently trading at S$0.52, a historical FY07 P/E of 9.6x. We consider HGUO to be relatively undervalued as compared to peers China Hongxing Sports Ltd (CHHS:SP; P/E of 16.7x) and Li Ning Co. Ltd (2331:HK; P/E of 45.3x).
Monday, 28 April 2008
Celestial Nutrifood vs Soy bean price
Saw the following section in CIMB report.
"China F&B Sector - No sight of near-term reprieve"
Stubbornly high commodity prices
The prices of agricultural commodities such as soybeans and corn continue to climb in 2008 despite the Chinese government’s export controls and ban on biofuel plants. Soybean prices have rebounded to Rmb5,322/tonne after briefly dipping below Rmb5,000/tonne in early April following the release of a US government forecast calling for an 18% increase in US soybean plantings in 2008.
Preferred picks are Celestial and China Fishery. Celestial (CENU SP, Outperform,
S$0.735, target S$1.20) is trading at undemanding valuations despite its intact growth
drivers. Management has cushioned the impact of margin compression by raising ASPs.
If I look at current Celestial share price of 0.72 vs PE 5.5x, it is very attractive. However, issues remained and market has persistently reluctant to give it a better valuation. Even though the business has actually grown a lot during these few years. They emerged from a pure consumer play to one with industrial product to cushion the earning. I think it is only for deep value patient investor to wait for the current commodity storm to be over.
Risk: Persistent high soya bean price which erode the earning
Catalyst: Raising ASP gradually, fall in soya bean price, rolling out of more product and higher factory utilisation.
"China F&B Sector - No sight of near-term reprieve"
Stubbornly high commodity prices
The prices of agricultural commodities such as soybeans and corn continue to climb in 2008 despite the Chinese government’s export controls and ban on biofuel plants. Soybean prices have rebounded to Rmb5,322/tonne after briefly dipping below Rmb5,000/tonne in early April following the release of a US government forecast calling for an 18% increase in US soybean plantings in 2008.
Preferred picks are Celestial and China Fishery. Celestial (CENU SP, Outperform,
S$0.735, target S$1.20) is trading at undemanding valuations despite its intact growth
drivers. Management has cushioned the impact of margin compression by raising ASPs.
If I look at current Celestial share price of 0.72 vs PE 5.5x, it is very attractive. However, issues remained and market has persistently reluctant to give it a better valuation. Even though the business has actually grown a lot during these few years. They emerged from a pure consumer play to one with industrial product to cushion the earning. I think it is only for deep value patient investor to wait for the current commodity storm to be over.
Risk: Persistent high soya bean price which erode the earning
Catalyst: Raising ASP gradually, fall in soya bean price, rolling out of more product and higher factory utilisation.
Saturday, 26 April 2008
China lower stamp duty for stock transaction
China just lower the stamp duty for stock transaction last week. As a result, the China stock market rally strongly. What is the rationale?
If you still remember, last year, they adjusted the stamp duty to curb the speculation. Immediately, the stock market plunged, because that signal the authority policy stance. It is puzzling to most of us here, that the small stamp duty amount would have a huge impact to the market. If you think rationally, it is really a very small percentage. However, we have to admit that it is a sentiment issue.
This time round, what happened was people get disillusioned about the Beijing Olympic story (that is stock market won't fall before the Olympic). More are calling for the authority to "save" them. Finally, they announced the lower stamp duty.
We have to admit that this is not a good solution. The role of market regulator is to regulate the market, to make sure it function as intended. Not to influence the market like what has happened. This would make people think that every time the authority would come to their rescue. This is no good to China market in the long term.
If you still remember, last year, they adjusted the stamp duty to curb the speculation. Immediately, the stock market plunged, because that signal the authority policy stance. It is puzzling to most of us here, that the small stamp duty amount would have a huge impact to the market. If you think rationally, it is really a very small percentage. However, we have to admit that it is a sentiment issue.
This time round, what happened was people get disillusioned about the Beijing Olympic story (that is stock market won't fall before the Olympic). More are calling for the authority to "save" them. Finally, they announced the lower stamp duty.
We have to admit that this is not a good solution. The role of market regulator is to regulate the market, to make sure it function as intended. Not to influence the market like what has happened. This would make people think that every time the authority would come to their rescue. This is no good to China market in the long term.
Monday, 21 April 2008
Bio-Treat bond default
Bio-Treat appeared in the headline again today, but for the wrong reason.
0200 GMT [Dow Jones] Bio-Treat Technology (B22.SG) down 6.5% at S$0.36 after company says it has received a notification of default on convertible bonds due 2013 from Merrill Lynch; adds Merrill has notified company that bonds that Merrill holds, which had an original face value of S$27.6 million, now immediately due and payable.
As explained in the company announcement, the bond comes with a put option. For most of us, it is sort of confusing, but I think it just simply means the bond holder has the right to request for bond termination and return of the borrowed money. The company also explained, it has no problem in servicing the bond, except the issue of remit the money out of China to repay the bond.
It depends on which angle you look at it. Technically, there may be nothing wrong with the operation and company strategy. But, at this poor sentiment market, any uncertainty could cause severe market reaction. From my observation around the forum, many still likes the counter. Be it for short term trading or for its long term fundamental.
I have long sold my position after found out that, most of the time, it has appeared in the headline for wrong reason. The key attribute to successful stock investing is certainty. It might be prudent to avoid at all cause.
0200 GMT [Dow Jones] Bio-Treat Technology (B22.SG) down 6.5% at S$0.36 after company says it has received a notification of default on convertible bonds due 2013 from Merrill Lynch; adds Merrill has notified company that bonds that Merrill holds, which had an original face value of S$27.6 million, now immediately due and payable.
As explained in the company announcement, the bond comes with a put option. For most of us, it is sort of confusing, but I think it just simply means the bond holder has the right to request for bond termination and return of the borrowed money. The company also explained, it has no problem in servicing the bond, except the issue of remit the money out of China to repay the bond.
It depends on which angle you look at it. Technically, there may be nothing wrong with the operation and company strategy. But, at this poor sentiment market, any uncertainty could cause severe market reaction. From my observation around the forum, many still likes the counter. Be it for short term trading or for its long term fundamental.
I have long sold my position after found out that, most of the time, it has appeared in the headline for wrong reason. The key attribute to successful stock investing is certainty. It might be prudent to avoid at all cause.
Is foreign currency account a good deal?
Today I had a casual chat with one colleague. He mentioned that he intends to open a foreign currency account to earn a higher interest rate. I did a quick check on the interest rate of this type of account. Following is a quick summary(6 months rate):
Pound - 4.925%
Aussie - 7.045%
Kiwi - 8.145%
Sounds tempting right? The interest rate is so high. What if I convert my Sing dollar to Kiwi dollar and deposit for 6 months? Woh la, I got the high interest. But, what is the catch here? You are subjected to foreign exchange rate risk! What if Sing dollar strengthen further after 6 months? The interest you earn might not cover the exchange rate loss you suffer.
So, remember, everything has a price. Forex market is subject to high volatility.
Pound - 4.925%
Aussie - 7.045%
Kiwi - 8.145%
Sounds tempting right? The interest rate is so high. What if I convert my Sing dollar to Kiwi dollar and deposit for 6 months? Woh la, I got the high interest. But, what is the catch here? You are subjected to foreign exchange rate risk! What if Sing dollar strengthen further after 6 months? The interest you earn might not cover the exchange rate loss you suffer.
So, remember, everything has a price. Forex market is subject to high volatility.
Friday, 18 April 2008
China Zaino - the unappreciated backpack
China Zaino made the trading debut today, close at 0.48 down 0.12 from the IPO price of 0.60. If I say, at 0.60, it represent a good buy then it is now a better buy. Of course, on the subject of valuation, it is always subjective. Different people uses different metric and assumption to value the company. Especially, at a bearish time, the valuation tends to be conservative and negative. Using simple valuation technique, I think it is good buy. For who uses more complicated method, he/she has every kind of reason to suggest it is otherwise. It is up to individual.
Another aspect to this is regarding the market sentiment. It doesn't help that China shares were being sold off widely today following the China market. In a weak market, without strong investor interest, we know the fate of the issue. But, market is not always right, to make money, we have to think objectively and independently.
The success of China Eratat (for not going under) could be due to generic interest in the China sports market. In 3 to 6 months time, we are unlikely to see a strong interest, unless the company shows a sterling result and flawless execution. Beware of the upcoming IPO!
Another aspect to this is regarding the market sentiment. It doesn't help that China shares were being sold off widely today following the China market. In a weak market, without strong investor interest, we know the fate of the issue. But, market is not always right, to make money, we have to think objectively and independently.
The success of China Eratat (for not going under) could be due to generic interest in the China sports market. In 3 to 6 months time, we are unlikely to see a strong interest, unless the company shows a sterling result and flawless execution. Beware of the upcoming IPO!
Sunday, 13 April 2008
China Zaino IPO
China Zaino is offering shares at 0.60
i) 143,000,000 by placement
ii) 2,000,000 by public offer
Facts
No 1 backpack company in China with 35.8% market share in 2006
DAPAI(达派) brand named 2006 Top 12 Bag Brands in China, it also won Top 500 Asia Valuable Brand Award
Sponsor of China Gymnastics Team in coming Olympic
Competitive strength
Market leader in backpack industry
Strong brand name
Extensive distribution network
Strong product design capabilities
Commitment to quality control
Strategic location
Future plans
Increase advertising and promotion activities
Expand distribution network
Expand production capacity
Target to become top 10 luggage players in China by 2008
Increase product design and development effort and multi branding strategy
Prospects
Rising affluence of China market
Growth in demand in consumer goods
Tourism boom in China
Directors sound that the rapid growth is going to continue
Risks
Intense competition
Brand image might be affected by negative publicity
Susceptible to change in general economic condition
May not able to respond to fashion and market trend timely
Fluctuation of raw material cost
Infringement of trademark and counterfeit of DAPAI brand
Operation might be disrupted if Dabao production facilities is ordered to reallocate
Statistics
FY2006 profit growth was 130%
9 months growth of FY2007 was 66%
Gross profit margin 31.8% (increasing)
NTA 12.84 cents
Hist EPS pre IPO: 7.59 cents
Hist EPS post IPO: 6.39 cents
PE post IPO: 9.39
Market capitalization: 567 million
Dividend policy 20% of net profit.
As the FY07 has not ended, the prospectus uses FY2006 figures. However, it also provided the profit figure after 9 months into FY2007. The profit growth was 66%, I think we can safely assume that it might be able to achieve 40% profit growth in FY2007. The EPS would then become 8.95 cents and the PE base on offer price would become 6.7.
Base on the industry outlook presented in the prospectus, the company is piggy back on the rising consumption in China and the increase of household income. The rising disposable income is set to create domestic travel boom and drive the demand for backpack and luggage. According to Frost & Sullivan, bag consumption in China was estimated to be approximately USD2.4 billion in 2006. The China bag industry is expected to continue to grow at a rapid pace with a CAGR of 20.0% between 2007 and 2009.
The report also shows that DAPAI, the number 1 brand commands as much as 35.8% market share compare to number 2 's 4.3% market share. This shows that it is not only the number 1, but also the strongest player. They are new to luggage market and the brand is not found in the top 10 luggage player list.
Since the company is market leader, industry trend is favourable and with reasonable valuation, it is worthwhile to subscribe. The public offer size is small, chance of getting is low.
i) 143,000,000 by placement
ii) 2,000,000 by public offer
Facts
No 1 backpack company in China with 35.8% market share in 2006
DAPAI(达派) brand named 2006 Top 12 Bag Brands in China, it also won Top 500 Asia Valuable Brand Award
Sponsor of China Gymnastics Team in coming Olympic
Competitive strength
Market leader in backpack industry
Strong brand name
Extensive distribution network
Strong product design capabilities
Commitment to quality control
Strategic location
Future plans
Increase advertising and promotion activities
Expand distribution network
Expand production capacity
Target to become top 10 luggage players in China by 2008
Increase product design and development effort and multi branding strategy
Prospects
Rising affluence of China market
Growth in demand in consumer goods
Tourism boom in China
Directors sound that the rapid growth is going to continue
Risks
Intense competition
Brand image might be affected by negative publicity
Susceptible to change in general economic condition
May not able to respond to fashion and market trend timely
Fluctuation of raw material cost
Infringement of trademark and counterfeit of DAPAI brand
Operation might be disrupted if Dabao production facilities is ordered to reallocate
Statistics
FY2006 profit growth was 130%
9 months growth of FY2007 was 66%
Gross profit margin 31.8% (increasing)
NTA 12.84 cents
Hist EPS pre IPO: 7.59 cents
Hist EPS post IPO: 6.39 cents
PE post IPO: 9.39
Market capitalization: 567 million
Dividend policy 20% of net profit.
As the FY07 has not ended, the prospectus uses FY2006 figures. However, it also provided the profit figure after 9 months into FY2007. The profit growth was 66%, I think we can safely assume that it might be able to achieve 40% profit growth in FY2007. The EPS would then become 8.95 cents and the PE base on offer price would become 6.7.
Base on the industry outlook presented in the prospectus, the company is piggy back on the rising consumption in China and the increase of household income. The rising disposable income is set to create domestic travel boom and drive the demand for backpack and luggage. According to Frost & Sullivan, bag consumption in China was estimated to be approximately USD2.4 billion in 2006. The China bag industry is expected to continue to grow at a rapid pace with a CAGR of 20.0% between 2007 and 2009.
The report also shows that DAPAI, the number 1 brand commands as much as 35.8% market share compare to number 2 's 4.3% market share. This shows that it is not only the number 1, but also the strongest player. They are new to luggage market and the brand is not found in the top 10 luggage player list.
Since the company is market leader, industry trend is favourable and with reasonable valuation, it is worthwhile to subscribe. The public offer size is small, chance of getting is low.
China Top Sports Shoe Brand
I search the web for more information on the top china sports shoe brand. The information is fragmented and there is no single reliable source.
Here is the list of top 10 brands (source):
1. Nike
2. Adidas
3. Converse
4. Reebok
5. Li-ning 李宁
6.Peak 匹克
7. 361 degree 361度
8. Anta 安踏
9. Jordan 乔丹
10. Xtep 特步
Depends on the website and time, some mentioned erke, some do not. Although hongxing compete in the same segment as Li-ning and Anta, but for the brand value, it still lack behind. However, some mentioned that erke is catching up fast. We shall see whether China Hongxing would catch up in the next few years. Generally, it is cited that they are expert in tennis shoe.
Following the successful listing of Li-ning, China Hongxing and Anta. More china shoe maker is seek to list to expand and compete in the domestic market. That's the reason we are seeing China Sports and now the China Eratat. The traditional strategy of Chinese sport brand is to engage brand ambassador to promote the brand. This might bring fast result, but for a brand to be long lasting, the core brand value and quality must remain consistent.
Yeli (野力) seems to be a new brand created to capture the fashion+sports market. It is not an established brand yet. Eratat (鳄莱特) has a longer history, but remain as localised brand in certain cities only.
Here is the list of top 10 brands (source):
1. Nike
2. Adidas
3. Converse
4. Reebok
5. Li-ning 李宁
6.Peak 匹克
7. 361 degree 361度
8. Anta 安踏
9. Jordan 乔丹
10. Xtep 特步
Depends on the website and time, some mentioned erke, some do not. Although hongxing compete in the same segment as Li-ning and Anta, but for the brand value, it still lack behind. However, some mentioned that erke is catching up fast. We shall see whether China Hongxing would catch up in the next few years. Generally, it is cited that they are expert in tennis shoe.
Following the successful listing of Li-ning, China Hongxing and Anta. More china shoe maker is seek to list to expand and compete in the domestic market. That's the reason we are seeing China Sports and now the China Eratat. The traditional strategy of Chinese sport brand is to engage brand ambassador to promote the brand. This might bring fast result, but for a brand to be long lasting, the core brand value and quality must remain consistent.
Yeli (野力) seems to be a new brand created to capture the fashion+sports market. It is not an established brand yet. Eratat (鳄莱特) has a longer history, but remain as localised brand in certain cities only.
Saturday, 12 April 2008
China Eratat Sports Fashion IPO
China Eratat Sports Fashion is offering new shares at 0.30
a) 8,000,000 shares to public
b) 155,000,000 shares by placement
The company is a branded sportswear enterprise based in Fujian Province, PRC, with a strong focus on brand management, product development and quality. They are principally engaged in the design, manufacture and distribution of sports footwear, and the design and distribution of sports apparel, which are mainly marketed under proprietary brand, ERATAT (鳄莱特 ).
The products are categorized under two segments – sports footwear and sports apparel. They have engaged Wong Lee Hom, a well-known international artiste as brand ambassador since 2002. They have also won some awards like 2006 China Best Public Image Brand and 2006 China Top 100 Footwear Producing Enterprise.
Competitive strength
(a) Established track record and reputable brand
(b) Extensive distribution network across the PRC
(c) Strong emphasis on quality products
(d) Strong product development capabilities
(e) Experienced, dynamic and committed management team
Industry prospect
(a) Increasing consumer consumption and sophistication in the PRC, particularly in the mass-market consumer segment
(b) Rising emphasis on sports and leisure-centred lifestyles in the PRC
(c) Strong growth potential of our ERATAT brand and products
Future plans
(a) Expand production facilities
(b) Expand market presence and distribution network
(c) Strengthen the brand through promotion and marketing
(d) Enhance product development
(e) Strategic tie up and investment
Key risks
(a) Highly competitive sports fashion footwear industry
(b) Reliant on the brand ERATAT
(c) Infringement of intellectual property
(d) Retailers of ERATA products face rising competition for retail space
(e) Dependent on PRC distributors
(f) Labor shortage and rising cost
Statistics
NAV after ipo : 13.51 cents
Hist EPS on 290,029,357 shares : 2.7 cts
Hist PE : 10.8
Hist PE base on post ipo 414,912,514 shares : 15.9
Market capitalization (ipo price 0.30) : 124.5 million
Gross profit margin for FY07 : 28.4
Dividend policy not less than 20% of net profit
1H2008 profit is 25% increase compare to 1H2007, assume EPS growth at 25%, forecast EPS is 0.024. The forecast PE is 12.7.
China Eratat Sports Fashion is a new comer that would join the growing list of china sport company listed on SGX. The current listed peers are China Hongxing and China Sports.
By its own right, the company has a reputable brand and is in a fast growing industry. However, if we look at the track record, the company has achieved significant growth on FY2007 only. It is unclear to me that how the future growth rate would be.
It is also fair for us to compare the company against China Hongxing and China Sports since they all operate in the same market segment. I should focus the discussion on 3 aspects – PE, margin and market cap.
China Hongxing: price 0.61, eps 0.035, PE 17.4x, gross margin 41.1%, market cap 1.8billion
China Sports: price 0.91, eps 0.106, PE 8.6x, gross margin 22%, market cap 306mil
Hongxing is in its own league in terms of PE, margin and market cap. ERATAT is much a smaller player compare to both, or maybe more appropriate to compare against China Sports. Even looking at forecast number, ERATAT 12.7 vs China Sport 8.6, I am hesitate to subscribe.
In the industry discussion, the prospectus cited that
Sportswear in China encompasses apparel, shoes and accessories. China’s sportswear market in 2006 is estimated to be worth between US$4.13 billion to US$5.69 billion. We estimate the Chinese sportswear market to grow by 18.6% to 23.6% between 2007 and 2010. The market size by 2010 is expected to be worth between US$8.16 billion to US$13.26 billion.
Nike, Adidas and Li-Ning are the top three players in the Chinese sportswear market. They collectively occupy between 28.0% and 37.0% of China’s fragmented sportswear market. The remainder comprises approximately 200 smaller players. These players produce sportswear as original equipment manufacturers and original brand manufacturers. There are more than 600 different brands of sportswear in the Chinese market.
This shows that the competition is very intense. I think only the strong brand would survive and thrill.
In the competition discussion, it was highlight that there are two market segments
1.Global brand market segment which brands like Nike, Adidas occupied and targeting top tier cities
2.PRC leading brand market segment which have Li-Ning, Anta, Kangwei, Hongxing Erke and XTEP which mainly targeting second to third tier city
It is interesting to evaluate the competition position and brand equity of each China sports brand and try to identify who is the rising star. Once I have time, I might do some research on this.
a) 8,000,000 shares to public
b) 155,000,000 shares by placement
The company is a branded sportswear enterprise based in Fujian Province, PRC, with a strong focus on brand management, product development and quality. They are principally engaged in the design, manufacture and distribution of sports footwear, and the design and distribution of sports apparel, which are mainly marketed under proprietary brand, ERATAT (鳄莱特 ).
The products are categorized under two segments – sports footwear and sports apparel. They have engaged Wong Lee Hom, a well-known international artiste as brand ambassador since 2002. They have also won some awards like 2006 China Best Public Image Brand and 2006 China Top 100 Footwear Producing Enterprise.
Competitive strength
(a) Established track record and reputable brand
(b) Extensive distribution network across the PRC
(c) Strong emphasis on quality products
(d) Strong product development capabilities
(e) Experienced, dynamic and committed management team
Industry prospect
(a) Increasing consumer consumption and sophistication in the PRC, particularly in the mass-market consumer segment
(b) Rising emphasis on sports and leisure-centred lifestyles in the PRC
(c) Strong growth potential of our ERATAT brand and products
Future plans
(a) Expand production facilities
(b) Expand market presence and distribution network
(c) Strengthen the brand through promotion and marketing
(d) Enhance product development
(e) Strategic tie up and investment
Key risks
(a) Highly competitive sports fashion footwear industry
(b) Reliant on the brand ERATAT
(c) Infringement of intellectual property
(d) Retailers of ERATA products face rising competition for retail space
(e) Dependent on PRC distributors
(f) Labor shortage and rising cost
Statistics
NAV after ipo : 13.51 cents
Hist EPS on 290,029,357 shares : 2.7 cts
Hist PE : 10.8
Hist PE base on post ipo 414,912,514 shares : 15.9
Market capitalization (ipo price 0.30) : 124.5 million
Gross profit margin for FY07 : 28.4
Dividend policy not less than 20% of net profit
1H2008 profit is 25% increase compare to 1H2007, assume EPS growth at 25%, forecast EPS is 0.024. The forecast PE is 12.7.
China Eratat Sports Fashion is a new comer that would join the growing list of china sport company listed on SGX. The current listed peers are China Hongxing and China Sports.
By its own right, the company has a reputable brand and is in a fast growing industry. However, if we look at the track record, the company has achieved significant growth on FY2007 only. It is unclear to me that how the future growth rate would be.
It is also fair for us to compare the company against China Hongxing and China Sports since they all operate in the same market segment. I should focus the discussion on 3 aspects – PE, margin and market cap.
China Hongxing: price 0.61, eps 0.035, PE 17.4x, gross margin 41.1%, market cap 1.8billion
China Sports: price 0.91, eps 0.106, PE 8.6x, gross margin 22%, market cap 306mil
Hongxing is in its own league in terms of PE, margin and market cap. ERATAT is much a smaller player compare to both, or maybe more appropriate to compare against China Sports. Even looking at forecast number, ERATAT 12.7 vs China Sport 8.6, I am hesitate to subscribe.
In the industry discussion, the prospectus cited that
Sportswear in China encompasses apparel, shoes and accessories. China’s sportswear market in 2006 is estimated to be worth between US$4.13 billion to US$5.69 billion. We estimate the Chinese sportswear market to grow by 18.6% to 23.6% between 2007 and 2010. The market size by 2010 is expected to be worth between US$8.16 billion to US$13.26 billion.
Nike, Adidas and Li-Ning are the top three players in the Chinese sportswear market. They collectively occupy between 28.0% and 37.0% of China’s fragmented sportswear market. The remainder comprises approximately 200 smaller players. These players produce sportswear as original equipment manufacturers and original brand manufacturers. There are more than 600 different brands of sportswear in the Chinese market.
This shows that the competition is very intense. I think only the strong brand would survive and thrill.
In the competition discussion, it was highlight that there are two market segments
1.Global brand market segment which brands like Nike, Adidas occupied and targeting top tier cities
2.PRC leading brand market segment which have Li-Ning, Anta, Kangwei, Hongxing Erke and XTEP which mainly targeting second to third tier city
It is interesting to evaluate the competition position and brand equity of each China sports brand and try to identify who is the rising star. Once I have time, I might do some research on this.
Thursday, 10 April 2008
Cosco Corp - the great plunge
This is what I read from Kim Eng news today.
Its 51%-owned Cosco Shipyard Group (CSG) unit has secured about US$292.3m worth of offshore and tanker building deals.
The second contract secured is to build two 59,000 dwt shuttle tankers for a Danish owner valued at 101.2m euros ($220m).
The group also announced yesterday that it will not be proceeding with a US$202m project to build a GM5000 semi-submersible rig hull for Norwegian owner Red Flag AS as announced last May.
Although the new contract secured is more than enough to cover for the lost contract, however, that's not the market think obviously.
Cosco down 15% to 2.850. 4 of the Cosco call warrant also on the top volume list losing 30+%.
Cosco has many supporters in the market, both fund managers and retail investor. Especially many retail investors have been eyeing for a stake for a long time. However, time has changed, the once easy to go up stock upon any good news is not doing that anymore. Instead, the bad news have been magnifying and follow by relentless sell down.
I think one has to think carefully and re access own situation before taking the plunge. Key questions to ask
1. What is my holding period and exit strategy?
2. Is the valuation attractive vs the prospective cost increase and slow order?
Its 51%-owned Cosco Shipyard Group (CSG) unit has secured about US$292.3m worth of offshore and tanker building deals.
The second contract secured is to build two 59,000 dwt shuttle tankers for a Danish owner valued at 101.2m euros ($220m).
The group also announced yesterday that it will not be proceeding with a US$202m project to build a GM5000 semi-submersible rig hull for Norwegian owner Red Flag AS as announced last May.
Although the new contract secured is more than enough to cover for the lost contract, however, that's not the market think obviously.
Cosco down 15% to 2.850. 4 of the Cosco call warrant also on the top volume list losing 30+%.
Cosco has many supporters in the market, both fund managers and retail investor. Especially many retail investors have been eyeing for a stake for a long time. However, time has changed, the once easy to go up stock upon any good news is not doing that anymore. Instead, the bad news have been magnifying and follow by relentless sell down.
I think one has to think carefully and re access own situation before taking the plunge. Key questions to ask
1. What is my holding period and exit strategy?
2. Is the valuation attractive vs the prospective cost increase and slow order?
Saturday, 5 April 2008
Sudden surge in Sino Env and Technics Oil & Gas share price
Today, Sino Env and Technics Oil & Gas share price suddenly jumped.
Sino jumped 0.15 to 1.4
Technics Oil & Gas jumped 0.12 to 0.61
For Technics, in reply to SGX, there's no undisclosed information that can explain the trading pattern. But it does say that "The Company however wishes to point out that in the ordinary course of its business, it actively explores possible new investments and other business opportunities in line with its strategy to expand its business and improve shareholders’ returns."
For Sino Env, the company promptly requested for trading halt. In the reply to SGX, company said it would announce promptly.
Market does know something extra, sometime faster than the announcement. Some good news are brewing, that's why the sudden surge in share price. The listed company should spend extra effort to ensure that the insider information is not leaked out before the announcement. Those first movers have gained the unfair advantage against other market players.
Sino jumped 0.15 to 1.4
Technics Oil & Gas jumped 0.12 to 0.61
For Technics, in reply to SGX, there's no undisclosed information that can explain the trading pattern. But it does say that "The Company however wishes to point out that in the ordinary course of its business, it actively explores possible new investments and other business opportunities in line with its strategy to expand its business and improve shareholders’ returns."
For Sino Env, the company promptly requested for trading halt. In the reply to SGX, company said it would announce promptly.
Market does know something extra, sometime faster than the announcement. Some good news are brewing, that's why the sudden surge in share price. The listed company should spend extra effort to ensure that the insider information is not leaked out before the announcement. Those first movers have gained the unfair advantage against other market players.
Thursday, 3 April 2008
A relieved rally - Fed action seems to work?
STI closed at 3171 today. This week continue to be a relieve rally week. After hitting the lowest point two weeks ago, market rebounded. Stocks that were unloved and unwanted, are back in favourite now.
Look at share price of Synear as follow. You would have made 38.7% of profit.
25 Mar 0.49
03 Apr 0.68
Ben Bernanke hinted the worst could be over, there is unlikely a second Bear Sterns. Is the worst really over? We can ask two questions.
1. Would there be further write down or huge losses?
No one is sure actually. We are entering Q1 reporting season and shall know shortly. I suspect the write down would even stretch to Q2
2. Economy is going to be good after next 6 months?
The outlook is still uncertain. As stock market is the forecasting machine, unless the outlook is bright, we are not able to see a big rally. Because there is really no reason to be optimistic.
The steep fall of share price should be contributed by temporary drying up of liquidity across the globe. Fund redemption and losses in developed market cause the fund manager to pull out from Asia market. As the survey has shown, fund manager has increased the cash holding. They are unlikely to return so fast and retail investor else where need sometime to cool down before putting fresh money back into equity.
So, now is time to be pessimistic and defensive? I think not. The only way to make big money is to buy when no one else wants to buy. When you bought it dirt cheap, your risk is limited but upside is huge. This is on the basis of buying strong and growing company that would ride through this storm. I am hoping it would drop again, so that I can start buying cheaply. I am planning to purchase slowly when the stock suffer significant drop.
Look at share price of Synear as follow. You would have made 38.7% of profit.
25 Mar 0.49
03 Apr 0.68
Ben Bernanke hinted the worst could be over, there is unlikely a second Bear Sterns. Is the worst really over? We can ask two questions.
1. Would there be further write down or huge losses?
No one is sure actually. We are entering Q1 reporting season and shall know shortly. I suspect the write down would even stretch to Q2
2. Economy is going to be good after next 6 months?
The outlook is still uncertain. As stock market is the forecasting machine, unless the outlook is bright, we are not able to see a big rally. Because there is really no reason to be optimistic.
The steep fall of share price should be contributed by temporary drying up of liquidity across the globe. Fund redemption and losses in developed market cause the fund manager to pull out from Asia market. As the survey has shown, fund manager has increased the cash holding. They are unlikely to return so fast and retail investor else where need sometime to cool down before putting fresh money back into equity.
So, now is time to be pessimistic and defensive? I think not. The only way to make big money is to buy when no one else wants to buy. When you bought it dirt cheap, your risk is limited but upside is huge. This is on the basis of buying strong and growing company that would ride through this storm. I am hoping it would drop again, so that I can start buying cheaply. I am planning to purchase slowly when the stock suffer significant drop.
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