The Hour Glass

(20-05-2013, 08:43 PM)sahara Wrote:

(20-05-2013, 07:30 PM)psolhawk Wrote: Has anyone digested the recent Sunday Times article on the blinded taste test done on two Ladureemacaroons? I am really curious if their high pricing strategy will stand the test of time. Since almost the rest are cheaper and taste good as well.

You could probably do a blind taste test on Coca Cola and store brand colas and yield similar results.

Strong brand = pricing power.

agreed!!

Swiss watchmaking in March 2013
Result comparable to that of March 2012

Swiss watch exports recorded a very similar result to that achieved a year ago. Their value, at 1.7 billion francs, corresponds to a variation of +0.6%. While growth has clearly slowed compared to 2012, the levels attained remain very high, with the first quarter closing at 4.7 billion francs, an increase of 2.4%.

The two main materials represented by steel and gold saw their value increase in March. However bimetallic watches declined by a few points. The total number of timepieces registered a steeper downturn. In one month, 160,000 fewer watches left Switzerland out of a total of 2.1 million units. This reduction was concentrated mainly in the category of other materials.

Wristwatch exports varied according to price in March. Products under 3,000 francs (export price) recorded a decline (-6.4% by value and -7.6% by volume). Above this level, trends were positive. The rise in value (+7.2%) made up for the decline in other segments, while the upturn in the number of timepieces was more modest (+2.7%).

The main markets also recorded mixed results. A negative monthly trend saw Hong Kong continue its marked slowdown. China followed the same path, but in much more pronounced fashion, recording a succession of declines in recent months. In second position, the United States also saw its progress checked, albeit remaining on an upward trend. Despite a quieter month in March, European growth remained at a high level. Germany and Italy registered increases, while France lost ground (-7.2%). In March, the highest rates of variation were recorded in the Middle East.

Source: FHS

FY13 (ended 31Mar13) full-year results just out.....
http://info.sgx.com/webcoranncatth.nsf/V...9001BD7E5/$file/SGX_THGL_FY2013.pdf?openelement [result announcement]
http://info.sgx.com/webcoranncatth.nsf/V...9001BD7E5/$file/SGX_THGL_Media_Release_FY2013.pdf?openelement [press release]

No surprise, as the steady result again affirms THG as probably the most profitable listed Singapore retail enterprise. The latest 31Mar13 B/S remains rock-solid. A Final dividend of $0.055/share declared.

The very high-quality and superior business of THG can be easily discerned by making a direct comparison with the latest FY13 (ended 31Mar13) full-year result of Cortina Holdings just released today.....
http://info.sgx.com/webcoranncatth.nsf/V...9003DB9EF/$file/CHLFY2013.pdf?openelement

(28-05-2013, 09:14 PM)dydx Wrote: No surprise, as the steady result again affirms THG as probably the most profitable listed Singapore retail enterprise. The latest 31Mar13 B/S remains rock-solid. A Final dividend of $0.055/share declared.

The very high-quality and superior business of THG can be easily discerned by making a direct comparison with the latest FY13 (ended 31Mar13) full-year result of Cortina Holdings just released today.....
http://info.sgx.com/webcoranncatth.nsf/V...9003DB9EF/$file/CHLFY2013.pdf?openelement

Thanks dydx.

If I may ask a few questions on the business?

1) Why was dividend dropped from 6c to 5.5c? Does this signal a potential drop in business activity moving forward?

2) The statement mentioned that the continuing global crisis is impacting demand - would you see top line (and also bottom line cum margins) being affected?

3) FCF was considerably lower for FY 2013 compared to FY 2012 - any concerns here?

4) Revenue was flat yoy while NPAT declined slightly - what are the drivers of growth for the business?

5) What is your view on the valuation of Hour Glass, and is it expensive compared to peers such as Cortina?

Thanks! Glad to be able to understand the business better.

(28-05-2013, 09:27 PM)Musicwhiz Wrote: Thanks dydx.

If I may ask a few questions on the business?

1) Why was dividend dropped from 6c to 5.5c? Does this signal a potential drop in business activity moving forward?

2) The statement mentioned that the continuing global crisis is impacting demand - would you see top line (and also bottom line cum margins) being affected?

3) FCF was considerably lower for FY 2013 compared to FY 2012 - any concerns here?

4) Revenue was flat yoy while NPAT declined slightly - what are the drivers of growth for the business?

5) What is your view on the valuation of Hour Glass, and is it expensive compared to peers such as Cortina?

Thanks! Glad to be able to understand the business better.

1) Don't see the reason to cut dividend by $1 million though the group plans to expand into 2 more mono boutiques this year. Payout ratio is not high to begin with. Maybe we should see if salaries for top management got cut as well.

2) As for top line wise, I will say the export results for the past 4 months have been more stable and better than the eratic result last year
http://www.fhs.ch/script/getstat.php?fil...0104_a.pdf

Hong Kong and China have been affected since the new team at China has taken over and is actively promoting thriftiness and discouraging expensive gift.

Not forgetting that they have 2 new shops opened in late 2012 which will boost the result slightly. In fact, I believe the 4th quarter displayed some growth if you compare the 9th month and full year result. Personally, I don't expect any significant growth in top line and bottom line for last year and this year.

3) FCF has been poured into increase in inventory. This is after all an inventory intensive business.

4) Similar to 2, and one reason for the drop in NPAT has been the spike in rental. Something to watch out for.

5) At 8 x PE, I will say it is fair. You will not want to pay too much for an inventory intensive business. Not too sure about Cortina, but I believe Cortina has a higher operating leverage which can result in a sharper movement in profit margin in both direction when revenue changes.

(vested)

Musicwhiz,

I think our very promising 21-year old student investor Shanrui_91 has very ably answered your questions. If I may add,

(1) In evaluating THG as a longer term investment opportunity, we must be able to discern the quality aspects of its proven senior management team led by Dr Kenny Chan and Mr Michael Tay, supervised by Dr Henry Tay as the founder and controlling shareholder, and their combined motivation and aspirations to grow the business further and properly as their life-long careers and passion. For this we actually have their track record to rely on, and we should never under-estimate what a smart management can do to a business over time!

(2) I guess because of (1) above, investors can quite comfortably take a medium-term view on THG as a business and as an investment, and those who have done so before have been rewarded handsomely by a rise in the share price over time and the yearly dividends. I guess THG as a stock has proven to be a highly suitable one for many conservative Singapore based investors - including many retirees - because of the reputation of the Tays and Chans, its established local operations which investors can 'feel and touch' during their leisure, and its regular yearly dividends.

(3) In valuating THG as a stock, we should also bear in mind that there lies within the B/S quite a lot of reserve assets including retail/office properties recorded at conservative BV, a decent net cash reserve, and the fact that a big portion of its watch inventory is actually quite liquid.

May i also add on that besides looking at the financial statements and the management, which are necessary due dilligence, any potential investors in a luxury watch retailing business will do well to also consider the demographics and spending habits of the target customers.

There will always be people who eschews expenditure on luxury items since these are wants and not needs. By the same token, there will always be those who has to have luxury watches for various reasons.

For businessnessmen, it is comes as part of their presentation and/or ego; for watch collectors, they don't stop at one, if at all they stop; For others, it may be a reward for their hard work or just pure impulsive spending to boost their ego or satisfy their desires. I know of quite a fair number of friends who purchase a few Rolexes in a year! And these are middle class working employees.

So if the management is prudent, experienced and motivated, watch retailing can be quite lucrative. As such if we see a build up in inventory, we need to look at which brands are being stocked up. For fast moving and high volume brands like the Rolexes, I'm not too concerned. These stocks are quite liquid and the brands sell themselves anyway.

Just my two cents worth from a qualitative viewpoint. Not an invitation to buy or sell the shares.

Good Morning All :-)

Re: INVENTORY

Observations
With inventory of 266m accounting for > 90% of NTA and > 60% of Total Assets, I think I need to develop a deeper understanding of THG's inventory valuation methods.

Write-downs to NRV on inventory and subsequent write-backs I guess are to be expected. Over the last 7 years, the effect of write-downs on the P/L have somewhat been offset largely by write-backs.

A not insignificant portion of current inventory on the B/S has been marked down to NRV.

Over the last 2 years, about 460M flowed out of inventory on the B/S to COGS, suggesting relatively fast moving stock I guess.

Just wondering
(1) if THG's type of inventory is the type that will never be, for lack of a better term, "permanently impaired".

(2) of the 56M of stock marked at NRV on the B/S currently, if it is only a matter of time before they are sold at NRV, slightly lower or higher.

(3) if the valuation done on inventory (to determine if they should be marked at cost or NRV) is reasonable and one which an independent valuer would largely agree with.

In a nutshell
If inventory wasn't such a large portion of their net worth, I guess this would be a non-issue.

Thanks in advance for any shared insightful thoughts you guys might have on this!

P.S. Vested

hm.. they holding so much inventory for what reason?
usually for such watches, in the long term does the value of the inventory go higher or lower?

(29-05-2013, 03:09 PM)felixleong Wrote: hm.. they holding so much inventory for what reason?
usually for such watches, in the long term does the value of the inventory go higher or lower?

Management state that their reason for holding large amounts of inventory is that they expect the prices for Swiss watches to move higher over the coming years.