China Eratat Sports IPO.

Closing date of application: 15 April 2008
Commencement of trading: 17 April 2008

Established in 1998, China Eratat Sports is engaged in the design, manufacture, and sale of sports fashion footwear and apparel under their own Eratat brand.

Company background

• Their products are sold across 21 provinces / cities at 1,393 retail locations through their PRC distributors.
• They distinguish themselves from their competitors by developing their products based on the concept of "Life - Sports".
• International Artiste Wang Lee Hom has been their brand ambassador since 2002.

Competitive Strengths

• They are well received and widely recognised in the PRC market since 1998, even having received the "2006 China Best Public Image Brand".
• They have strong product development capabilities, being able to generate approx. 3,000 and 1,000 design specification types for their footwear and apparel products range per annum respectively.
  

Key Growth Plans:

1. To increase their production lines in their new factory premises to achieve 11.5m pairs of footwear and 6.2m apparel units per annum.
2. To strengthen their brand image and recognition by advertising aggressively on TV and print, use of brand ambassadors, especially for the run-up and during the Beijing Olympics.

Financial figures

Intended IPO price: $0.30
No. of shares available for public offer: 8m
No. of shares available for placement offer: 155m
Total post invitation share capital: Approx. 414.9m

Note: Unaudited 2QFY2008 figures were available in the prospectus.

FY2007
Revenue: $56.3m
Profit: $8m
NAV: 0.0752
EPS: 0.0194
EPS % Incr: 160%
PE ratio: 15.5x
Price: 0.30

2QFY2008
Revenue: $77.3m
Profit: $13m
NAV: 0.1351 (incl. IPO proceeds)
EPS: 0.0318
EPS Incr: 64% (Est.)
PE Ratio: 9.4x
Price 0.30

Dividend policy: They intend to distribute not less than 20% of profits as dividends for FY2010.

Conclusion:

Based on its numbers, China Eratat is a smaller company as compared to its SGX-listed peers of China Hongxing and China Sports, whose net profits were approx. S$60m and S$30m respectively.

As such, they trade at a higher 25x and 18x historical PEs respectively.

China Eratat Sports should trade at a Fair Value of $0.40 or a discounted 14x PE only.


Probability of getting allotted for the IPO - FAIR


I have only included the key points of the prospectus. Certain information have been omitted in order to keep my write-up short, but you can find the entire prospectus here.