Eratat promising turn around and low valuation

Eratat has just released the Q2 result. A quick scan on the financial statement:

For 6 months result,
Gross profit +3.3%
Because of reduced in expenses, Operating profit increased 23.4%
Trade receivable is quite high at 347,747 because of lengthen credit term
Current liabilities 130,968
Cash and bank balance 131,936

Margin improvement +2.8% for 6 months
Operating cash flow at 99,189
But because of the high trade receivable, it registered a cash outflow

EPS is 17.16 RMB cts (3.31 SGD cts)

In the cut throat China sports wear market, Hongxing has suffered a lot. Eratat is moving away to lifestyle fashion sector. How successful it is, remain to be seen. However, this set of result is quite promising. There are few important points

- Margin increased
- ASP increased
- Profit growth

The negative part

- Higher receivable days
- Cash outflow (company earn money but no cash comes in)

The management may be smart in changing the direction of business, and on the surface, they might just have succeeded in doing so. However, challenges abound. Management is looking forward for better time ahead.

The risk is still there, especially there is no cash coming into the company. Distributors still haven't pay back the money. Comparing the cash balance and current liabilities, company should have enough cash to pay the liabilities until real cash flowing in.

The valuation is low. Without considering the seasonality, if you just double the half year EPS, we are looking at whole year earning of 6.62 cts. Last Friday closing price was 0.205 and it is trading at forward PE of 3. That is super cheap.