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Background: Established in 1979, The Hour Glass is a leading luxury watch retailer in Asia. It represents over 60 brands across 25 boutiques in nine cities in Asia Pacific, with exclusive distribution rights for more than 20 premier Swiss brands.
Recent development:
After a record-breaking sales performance in FY Mar11 of $517.6m (up 7% YoY), the company’s 1HFY Mar12 results reflected continued strong performance with revenue increasing by 20% YoY to $279.9m, due to an expansion in retail network. Net profit rose by 25% YoY to $20.1m. Share price has fared well, rising by 3.9% YTD compared to the Straits Times Index which has fallen by 17% YTD.
Over View:
Main markets saw large jump in watch exports. According to the Federation of Swiss Watch Industry, the monthly value of watch exports has skyrocketed this year. In October alone, exports reported a value of CHF1.9b, reflecting an 18.6% YoY increase. Year-to-date, the main countries to which The Hour Glass has exposure has increased considerably. The value of Swiss watch exports to Singapore went up by 24.9% YoY, Hong Kong by 27.9% YoY, Australia by 29.4% YoY, Thailand by 45.1% YoY, Japan by 12.0% YoY and Malaysia by 17.1% YoY.
Strength reflected in margins. Gross margins have held steady at above 20% over the past five years, while net margins saw a rise of 1.9ppt since 2007 despite increasing salaries and higher rentals.
Balance sheet strong and efficient. The company holds a net cash position of $19.9m. Its inventory turnover has been strong at 159 days, whereas local competitor Cortina recorded 251 days in FY11.
Lagging in store growth. The Hour Glass is falling behind its competitors in terms of store growth, with only 25 stores throughout Asia. Hengdeli, one of the largest players, has opened 378 outlets in China, achieving a growth rate of 36.9%. US jewellery and watch brand Harry Winston has opened its first flagship store in Hong Kong and plans to have 13 outlets by 2016 in Asia. Currently, China accounts for less than 10% of The Hour Glass’s total revenue.
Dividend payout consistent. In the past three years, the company paid out 27-44% of its earnings, translating to a yield of 2.3-4.7%. The stock is trading at 5.8x PER and 1.0x P/BV
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