Eratat Lifestyle is expecting a strong orderbook for its spring/summer casual wear, the latest designs of which went on show to its distributors and retailers over the weekend in Jinjiang city. Photo by Leong Chan Teik

Hundreds of distributors and retailers, who exclusively sell Eratat products, packed the hotel hall to make their choices on the designs of apparel to order. Photo: Leong Chan Teik

IT WAS my first time at such a trade fair but, judging by the captivated audience, everybody else was just as enthralled as I was by the lively and attractive models and the latest casual wear designs of Eratat Lifestyle that they were displaying.

Hundreds of distributors and retailers from mainly the coastal cities from north to south of China packed a hall in the 5-star Winner International Hotel in Jinjiang city in Fujian province on Saturday (Aug 28).

Yang, one of Eratat's top 5 distributors, accounted for 8%, or RMB74 m, of the company's revenue last year. He is expected to increase his sales this year, and he was among 3 distributors who shared their success stories to inspire others at the trade fair. Photo: Leong Chan Teik

Their interest in the designs was laser-like for another reason: they were deciding which to place orders for, and in what quantities.

Which were the potential winning designs that would win consumer hearts and send stocks flying off the shelf when the spring-summer season begins in January?

Eratat Lifestyle holds such a trade fair twice a year, after which it collects an order book.

Aside from apparel, Eratat also designs stylish footwear, which it manufactures, but it outsources the manufacture of apparel.

In all, the order book it won at the last event in April (for delivery in July-December 2010) amounted to RMB500 million, a 12% increase year on year.

Two things about Eratat became clearer to me from my visit:

* Casual wear, not sportswear: Once it was into sportswear but over the past three years, seeing the rising competition in the industry, it has switched progressively to casual wear (and changed its name from China Eratat Sports Fashion to Eratat Lifestyle just last month).

The move makes sense in another way: Consumers will pay up for quality casual wear but there are relatively low limits to how much they mind paying for sportswear. Who wants to pay a bomb for a T-shirt to go jogging in?

That is why Eratat has been able to grow its average selling prices for both its apparel and footwear. Its ASPs and profit margins have risen for the current autumn/winter order book, which mean that 3Q and 4Q results this year are likely to be stronger.

At new monument on Qingyuan Mountain to recognise Eratat for its brand potential: L-R Kellyn Tan (VP, investor relations, Eratat), Lin Jiancheng (chairman & CEO, Eratat), Ken Ho (CFO, Eratat), Sam Ye (exec director, Eratat), Leong Chan Teik (NextInsight).

* Branding, branding: For the ASPs that it charges and the consumers it targets, Eratat recognizes that it has to work at branding. It sponsors TV programs and on promotions.

Currently, it is the sole sponsor for a sports program “2010 Judose Challenge Competition” which is telecast at prime time weekly on CCTV 5 nationwide.

In recognition of its brand and contribution to the community, a stone monument with Eratat’s name carved on it was unveiled in Qingyuan Mountain in nearby Quanzhou prior to the company’s fashion fair on Saturday (photo above). 

Largely for these two reasons, Eratat has now emerged as the leader of the pack – earnings-wise - among its Singapore-listed peers which continue to focus on sportswear.

China Hongxing Sports, the erstwhile leader, reported RMB38.8 m in net profit for the first six months of this year. Eratat reported RMB46.7 million.

Valuation-wise, Eratat has a trailing PE of 4X, which is cheap compared to China Hongxing’s 35X and China Sports’ 6X. A key reason for Hongxing's high PE is the cashpile that it has, amounting to some RMB2.8 billion.

In recent weeks, following the release of the 2Q results, Eratat’s stock price and volume have increased noticeably – thanks also to presentations at UOB Kay Hian and at InvestFair 2010 by its CFO Ken Ho and VP for investor relations, Kellyn Tan.

The Singaporean duo will present at CIMB tomorrow (Tuesday).

Though Eratat looks steady, the business is obviously subject to constant competition, the risks of rising raw material prices (rubber price has firmed up, by the way) and the wide range of choices available to consumers.

Last Saturday’s trade fair may yet bring in another solid order book (results of which will be announced by Eratat in a matter of weeks) but the battle for consumers is endless.

Finale: Eratat chairman Lin Jiancheng is on the far right of the front row, while his deputy, Sam Ye, is on his right. Photo: Leong Chan Teik

At a dinner for the hundreds of distributors and retailers, Mr Lin (second from right) joined in toast after toast. Photo: Leong Chan Teik

 

Recent story: CHINA ERATAT: Fund managers visit factory producing 5m pairs of shoes a year