The Hour Glass

1Q result out last evening.....
http://infopub.sgx.com/FileOpen/THGL_1Q_...eID=417154

Clearly, even THG cannot escape the overall softened consumer buying - even though for those who can afford it, they would buy a few nice watches in their life time - of branded luxury timepieces. It is encouraging though to note that THG is able to maintain its GPM steady at a healthy 22.9%, so when consumer buying increases again - and it should in the coming 3Q and 4Q, driven by Christmas buying, year-end bonus, CNY, seasonal tourist arrivals, etc. - more profits should flow in. As it is, I think THG is still operating at an overall comfortable profit level, as measured by a quarterly PBT of over $10.0m ($10.7m recorded in the just ended 1Q, which is a seasonally low quarter).

Actually, I think THG is destined to continue to do reasonably well. Why? One rather obvious point, with the most coveted brands like Rolex and Patek Philippe firmly under its belt - as opposed to Sincere which has lost the rights to carry both brands recently - and prominently displayed at/outside its stores, naturally more consumers will be attracted and walk into all the strategically located THG stores, and may end up eventually buying a watch or 2.  Of course, THG's business success and leading position in the SG market, as well as its successful measured overseas retail expansion todate, is attributed as much to its smarter management headed by founder Dr Henry Tay and his family members, who together remain the largest and controlling shareholder.

"Revenue for the quarter ended 30 June 2016 (“1Q FY2017”) was $148.2 million compared to
$159.3 million achieved in the same period last year (“1Q FY2016”) reflecting the slowdown and
increased competition in the region.
Gross margin was 22.9% (1Q FY2016: 22.8%). Rental costs were higher due to the expanded retail
network. Profit after tax of $8.3 million, a decline of 23% compared to 1Q FY2016.
As at 30 June 2016, group inventory was $331.5 million. Cash and cash equivalents were $80.7
million. Consolidated net assets were $445.6 million or $0.63 per share.

The continuing global economic uncertainty is expected to affect consumer sentiment and the
demand for watches and luxury goods.
Barring any unforeseen circumstances, the Group expects to remain profitable for the financial year."

Sharing my views and analysis on The Hour Glass. Comments are greatly welcomed. 

Choon 
http://commonMcommonS.wix.com/wisdom

Thanks Choon!

Good report! and well summarized in each topic,

(28-08-2016, 04:58 PM)Choon Wrote: Sharing my views and analysis on The Hour Glass. Comments are greatly welcomed. 

Choon 
http://commonMcommonS.wix.com/wisdom

I like your simple report but in-depth enough to think. Using Earning Yield Target is a new way of thinking to me. I need some time to digest. thanks for keeping me to think.

I still feel the easy way to evaluate THG is to simply look into their retail outlets, and take the trouble to visit them and talk to the people there as a potential customer and investor.

Through the many years of efforts in careful store location selection and store design/improvement, THG now has a very strong hold on the SG home market with 14 multi-brand stores (including 3 trading under "Watches of Switzerland") and 4 mono-brand stores (for Rolex, Hublot, Ulysse Nardin, and Girard-Perregaux), which are all strategically located and tastefully designed and fitted out.....
http://www.thehourglass.com/boutiques/singapore/

Of growing importance and value is THG's network of stores in the region, particularly in Malaysia (8 stores, including 3 mono-brand stores in KL), Thailand (5 stores, including 3 mono-brand stores in Bangkok; and 1 store in Phuket), and Australia (3 stores in Sydney, Melbourne, and Brisbane).....
http://www.thehourglass.com/boutiques/malaysia/
http://www.thehourglass.com/boutiques/thailand/
http://www.thehourglass.com/boutiques/australia/

(28-08-2016, 11:36 PM)corydorus Wrote:

(28-08-2016, 04:58 PM)Choon Wrote: Sharing my views and analysis on The Hour Glass. Comments are greatly welcomed. 

Choon 
http://commonMcommonS.wix.com/wisdom

I like your simple report but in-depth enough to think. Using Earning Yield Target is a new way of thinking to me. I need some time to digest. thanks for keeping me to think.

Earnings yield is copied from Warren Buffett. He explained it as seeing a stock as a bond, but with growing dividends instead of stagnant coupons. His target earnings yield was the long-term US bond interest rate. When long-term US bond interest rate falls too low, he then utilised a fixed 8% or 9%. Online, you can read about how he used this valuation method to value and buy See's Candies. 

Choon 
http://commonMcommonS.wix.com/wisdom

(30-08-2016, 11:32 PM)Choon Wrote:

(28-08-2016, 11:36 PM)corydorus Wrote:

(28-08-2016, 04:58 PM)Choon Wrote: Sharing my views and analysis on The Hour Glass. Comments are greatly welcomed. 

Choon 
http://commonMcommonS.wix.com/wisdom

I like your simple report but in-depth enough to think. Using Earning Yield Target is a new way of thinking to me. I need some time to digest. thanks for keeping me to think.

Earnings yield is copied from Warren Buffett. He explained it as seeing a stock as a bond, but with growing dividends instead of stagnant coupons. His target earnings yield was the long-term US bond interest rate. When long-term US bond interest rate falls too low, he then utilised a fixed 8% or 9%. Online, you can read about how he used this valuation method to value and buy See's Candies. 

Choon 
http://commonMcommonS.wix.com/wisdom

The key i think is the last page.

Assumption 1 : Estimate average net profit over 10 years
Assumption 2 : Deciding Earning Yield Target to Compute Market Cap Target

Stock Value = (Avg. Net Profit/Target Earning Yield)/Total Shares

Just wondering how practical it is.

The Hour Glass ($0.70) - It was once a $1.00 - $1.20 share with only about 120million shares issued and had dropped to around $0.40 cts per share during the financial crisis in 2006 before it rose to about $2.00 a few years back. Then, there was a share split of 2 for 1 shares and the share price again rose to about $2.00 subsequently. The no. of shares issued was around 240 million shares. Subsequently, a 3 for 1 bonus shares split was announced and the no. of shares issued was tripled to around 720million shares. Share price had dwindled from around $0.85 to $0.70...

However, net profit was pretty flat for the last 2 years with a possible declined this year. Unless one had bought THG before the first or second share split, THG is currently considered to be fully valued at current price level.

It is just plain lucky that a cash rich American fund is buying aggressively into this THG at this juncture. Else we will not get a buyer who is able to support the selling of such large quantity of THG from those shareholders stuck with large qty of THG shares for years and had waited for the opportunity to cash out and exit THG in the last few month at this price level amid the downturn. The trading volume of married deal in millions simply explained that.

Today's THG price is already equivalent to about $4.20 a share before the first share split but let's be reminded that its profit did not actually yet climb five fold. However for those who are cash rich and with a longer time horizon, this is still a good company with a prudent management team that is worth consider to invest in.. good luck. (Caveat emptor)

(31-08-2016, 05:22 AM)corydorus Wrote:

(30-08-2016, 11:32 PM)Choon Wrote:

(28-08-2016, 11:36 PM)corydorus Wrote:

(28-08-2016, 04:58 PM)Choon Wrote: Sharing my views and analysis on The Hour Glass. Comments are greatly welcomed. 

Choon 
http://commonMcommonS.wix.com/wisdom

I like your simple report but in-depth enough to think. Using Earning Yield Target is a new way of thinking to me. I need some time to digest. thanks for keeping me to think.

Earnings yield is copied from Warren Buffett. He explained it as seeing a stock as a bond, but with growing dividends instead of stagnant coupons. His target earnings yield was the long-term US bond interest rate. When long-term US bond interest rate falls too low, he then utilised a fixed 8% or 9%. Online, you can read about how he used this valuation method to value and buy See's Candies. 

Choon 
http://commonMcommonS.wix.com/wisdom

The key i think is the last page.

Assumption 1 : Estimate average net profit over 10 years
Assumption 2 : Deciding Earning Yield Target to Compute Market Cap Target

Stock Value = (Avg. Net Profit/Target Earning Yield)/Total Shares

Just wondering how practical it is.

I think one thing people constantly miss out is that OPMI cannot eat Earnings Yield one, no doubt it is important. The fuller picture to understand See's candy contribution to Berkshire is to see the cashflow to Berkshire. There is company cashflow; there is shareholders' cashflow. They are different.

“Last year See's sales were $383 million, and pre-tax profits were $82 million. The capital now required to run the business is $40 million. This means we have had to reinvest only $32 million since 1972 to handle the modest physical growth – and somewhat immodest financial growth – of the business. In the meantime pre-tax earnings have totaled $1.35 billion. All of that, except for the $32 million, has been sent to Berkshire (or, in the early years, to Blue Chip). After paying corporate taxes on the profits, we have used the rest to buy other attractive businesses. Just as Adam and Eve kick-started an activity that led to six billion humans, See's has given birth to multiple new streams of cash for us. (The biblical command to 'be fruitful and multiply' is one we take seriously at Berkshire).”