Hour Glass

[millionairemind]

February 11, 2009, 3.22 pm (Singapore time)

Hour Glass swings into red with $7.08m Q309 loss

By JAMIE LEE

The Hour Glass on Wednesday swang into the red with a quarterly net loss of $7.08 million.

The watch retailer made a net profit of $8.21 million in the same period a year ago.

The weaker results were due to an impairment loss of $14.1million on investment securities for the third quarter ended 31 December 2008.

Quarterly revenue fell 12 per cent to $116 million.

The loss per share for the current quarter is 3.05 cents. No dividend was declared.

[millionairemind]

The Hour Glass
Feb 12 close: $0.40
KIM ENG RESEARCH, Feb 12

QUARTERLY loss on impairment charge: The group posted a net loss of $7 million in Q3 2009 mainly due to a $14 million impairment charge on its quoted investment securities as mentioned in its recent profit guidance.

Excluding the impairment loss, the group would have reported a net profit of $21.2 million for 9M 2009, which is in line with our expectation.

Operationally still strong: Despite the challenging business environment, sales in Q3 2009 remained firm with a moderate 0.8 per cent increase from Q2 2009. Gross margins improved from 19.8 per cent to 21.5 per cent during the year, reflecting the management's efforts to drive operating efficiencies. Operating margins stood steady at 8.1 per cent due to effective cost management.

Sales of luxury time pieces hurt by weak discretionary spending: The group expects the spending on luxury consumer items to remain sluggish in the near-term amid the deterioration of the global economy.

This is in line with industry statistics from the Federation of the Swiss Watch Industry, which reflects a 7.6 per cent decline in the value of Swiss watch exports led by falling volumes.

Dividends could be cut to preserve capital: A healthy balance sheet with net cash of $12.7 million and positive operating cash flows of $10.9 million will help the group to weather the downturn.

However it might have to lower dividend payouts to conserve cash for working capital and capex requirements. Thus, in the medium term, we are less optimistic that the group will continue to pay out bonus dividends of at least 3.125 cents which it has been doing since FY04.

Leading luxury watch retailer at a bargain: We have cut our earnings estimate for FY09 by 56 per cent after factoring in the impairment loss and lowered our FY10 estimate by 25 per cent in view of weaker sales and margin pressures ahead.

Our target price is adjusted accordingly to 56 cents based on five times FY10 price-to-earnings ratio. Trading at a mere 0.53 times net asset value and 0.6 times of its inventory, we see good value in the stock over time.
BUY

[helios]

yesterday, someone mentioned the Tay's family ... i don't know they are quite diversed into other multiple businesses ...

[stilicon]

One company that will indirectly benefit from the opening of the big resorts in Singapore is probably The Hour Glass (THG, code : E5P.SI). With increasing affluent tourists, presumably come increasing clients for luxury watches.
In FY06 and FY07, THG paid dividend of 3,8c and 4,5c, corresponding to pay-out ratio of between 55% to 65%. In FY09, it chose to pay only 3,5c (pay-out ratio : 64%) in order "to preserve capital". At this time, it was understable. Now, suppose net income for FY10 comes at about 30 millions SGD. It should pay a div of at least 4c (with a pay-out ratio of about 30%). This would be a yield of 5%.
If one believes that luxury watches should sell well in the foreseeable future in Singapore, and that THG is a honest family-business that is well managed, then one might consider a THG investment as a reliable cash-flow supplier for the future.
Thus with a DDM valuation, starting with a next div at 4c, a 8% ROE requirement, a 5% increase in the next 5 years and a LT growth of 1%, an entry price of 90c is still acceptable.
For the moment THG price is still at 80c, and the P/B ratio is at about 85%, which is a nice margin of security. Especially when you look at their B/S, where most of the assets comes in the form of the stock of luxury watches (which will always find a buyer with probably little discount in any situation).

Of course one caveat is that the capitalisation of THG is minuscule, but as such it remains under the radars of the big boys (which may be seen as a good thing and also explains why its valuation has not been grossly inflated in the last 12 months).

[stilicon]

UOB-KH puts today The Hour Glass on its list of beneficiaries of development of "hospitality and tourism" sectors. They put a TP of S$1,10, but do not explain how they support such a price.

[stilicon]

The co. announces today their full year results :
Revenue increase by 10%, op. profit by 17%, and net profit by 155% (to 32,8 MSGD). Net cash-flow from operations increase by 9%. There is no debt (almost). Cash is now 50 M SGD, ie 21c for each share. I hope that they will reinvest this cash in new retail shops within the region.
One small disappointement to me was the unchanged 3,5c one-tier div. Pay-out ratio to eps is low : about 25%, and to op. cash-flows : about 40%.

Still, I like this stable business, and with a DDM model, I put a TP at 0,90 SGD. So, at 0,80, it is still interesting.
Beware : there is almost no daily volume. So one could get stuck with this stock at some very inconvenient times.

[stilicon]

results from Emperor Watch (887.HK) came in yesterday. (http://www.hkexnews.hk/listedco/listcon ... 322587.pdf)

Comparing THG with Hengdeli (3389.HK), Emperor Watch (887.HK) and Oriental Watch (398.HK), THG looks inexpensive. Hengdeli is about 10 times bigger, so it may be hard to really compare it with THG. But the comparison against the two others remains valid.
- The NAV of THG increases on av. 10% each year over the last 4 years. The others increase their revenue, but far less their NAV (In the case of Emperor Watch, it is even decreasing its NAV over a 4 years period (FY2008 to FY2011est.).
- THG return (be it ROA, ROE or ROCE) is better than that of the two others HK-based companies.
- THG valuation is far less demanding (whether through P/B, or P/E or P/OCF or EV/Ebitda)
- THG provides a higher (and always nice) dividend (assuming 4c on FY2011, that is a bit above 4%).

[stilicon]

results: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_F21D05C80223CE7D48257A080019FD01/$file/THGL_4Q_FY2012_for_SGX.pdf?openelement

- revenue : +17%
- net income : +29%
- NAV: S$1,25/share (NAV was S$0,633/share at the end of FY06, so it almost doubled in 6 year, ie a 12% average annual increase).
- dividend : 6c.
- margins keep increasing... Every indicator is green by me.

Meanwhile, the direction stated an cautious outlook : "Given the weak economic conditions in global markets, especially the slowdown of the luxury goods industry in Asia, it is anticipated that the lower level of consumer sentiment may begin to exert downward pressure.
The Group will continue its efforts to enhance its premium retail network and explore new businesses. In addition to refreshing its boutique environments and fine-tuning its merchandise mix, the Group plans to add more retail stores in key markets, namely in Singapore, Australia and Hong Kong."

[behappyalways]

Apple watch could call time on Swiss ascendancy in the high-end market
http://www.telegraph.co.uk/finance/comm ... arket.html

[behappyalways]

Swatch Co-Inventor: Apple Will Succeed and an Ice Age Is Coming for Swiss Watches
http://www.bloomberg.com/news/articles/ ... ss-watches

Apple watch could call time on Swiss ascendancy in the high-end market
http://www.telegraph.co.uk/finance/comm ... arket.html