The Hour Glass

(04-08-2014, 07:48 PM)dydx Wrote:

(04-08-2014, 02:38 PM)propertyinvestor Wrote: I have no idea why people would purchase watches from Hour Glass or from any authorised dealers in Singapore. The price difference between a rolex of the same model and specifications is almost 10k between here and Hong Kong.

The many reasons people will continue to buy their branded watches - including the high-price, exclusive ones - from THG and other well-established watch retailers include:
(1) Most people have a natural preference to buy branded watches from authorised reputable retailers operating nice shops - like those of THG.
(2) Not many local people would deliberately travel to a tax-free overseas location to save on local sales taxes - in Singapore's case, the 7% GST - unless the taxes (including import duties and luxury tax) are very high. Most people still prefer local conveniences including good services.
(3) Most of THG shops are located in cities where there exists a strong or growing demand for branded watches from the local population, and where there is a large and on-going inflow of foreign tourists. This strategy assures the shops will enjoy higher business volume from these 2 customer segments when well-established over time.

I noticed most of the rolex buyers seem to be of mainland or indonesian descent. This article is worrying...

http://www.bloomberg.com/news/2014-08-03...-away.html

(04-08-2014, 02:38 PM)propertyinvestor Wrote: I have no idea why people would purchase watches from Hour Glass or from any authorised dealers in Singapore. The price difference between a rolex of the same model and specifications is almost 10k between here and Hong Kong.

Are you talking about 10K Indonesia rupiah or vietnam dong ? Or the fake rolex and authentic ones. I think you've never owned rolex before

the reply to this query was easily summed up in one word mentioned in the recent agm - location

Despite a more competitive retail environment, THG has posted another steady Q1-FY15…..
http://infopub.sgx.com/FileOpen/THGL_1Q_...eID=308370

It is noteworthy that the Thai operations held under 2 associates are doing very well, as evidenced by a sharp 95% YoY increase in the related equity-accounted share of profits to $673k (vs. $346k in Q1-FY14). It is to be noted that in addition to the equity-accounted profits, THG also charges the Thai associates a management fee.

Not bad indeed, despite a sharp drop in Chinese arrivals due to MH17 and MH370 ,as well as a thai coup.
Employee expenses was well controlled too.Excellent!!!

not so good in my opinions:
1) inventories went up by SGD 30.5 mln, a very high number considering a challenging luxury watch environment. What's the reason behind this? is this for the non-watch related businesses?
2) as a result working capital investment was SGD 40.8 mln, almost a record high
3) as a result net cash dropped 43%
4) as a result days of inventory outstanding jumped to 204 days from just 184 days last year.

ability to be profitable is one thing, ability to manage working capital and still generate reasonable cash flow under challenging environment is another thing. I think the later one is more crucial at this moment.

HG is a treasured stocked in my portfolio as it has grown and maintain a relatively stable returns over the years,

Having said that, am i as confident as i was in the past about HG ?
A few points worry me but also a few bright spots

1. Previously, HG was trading below NAV.
Generally, it is now trading above NAV by around 10~20 %.

2. With the grim outlook for Singapore in retail, it is hard to justify what this premium is for ? Also note, retail is prone to a big problem : Inventory write-down. When that happens, it will be really grim for HG despite its "branded" good tag. The truth is branded goods and all get hit with the same hammer when buyers lose the "feel good to spend" feeling

3. Management is experienced in handling these ups and down.
If u look at their track record, they have the experience to handle ups and down.

4. THG dont own brands. Paying a premium more than what is now means you must believe see value somewhere. The outlook is tough, the space is heavily contested. So growth must come from where ? New biz lines ? New region growth ? This is my biggest worry.


5. It is still financially sound. I think there is value in prudent financial management. I think this has been shown in all the years it is operating.
They have a strong balance sheet and if opportunities do come, i think they are now in position to take some of these opportunities.

Personally, i will look to see how they will seeing these opportunities before vesting more.

There is nothing abnormal or wrong for Mr Market to price a well-established business with a proven track record of steady profitability like THG at a premium above its latest NAV/share. It simply means that Mr Market is willing to price the stock including attaching value on its near-term (say in the next 3 years) projected profits because the profits are predictable and it is reasonable to do so.

Selling branded watches to those rich-enough local residents and tourists in established markets like Singapore, KL, Bangkok, Melbourne, and Tokyo - the way THG is doing for the past 20+ - is a proven business strategy. A smart and experienced management who can maintain/grow long-term relationships with key watch names like Rolex and Patek Philippe, as well as managing retail strategies, mechanising, inventory and finances as well as THG Team is actually quite rare. Of course, "The Hour Glass" itself is now quite a valuable brand-name too..

Inventory increased is for the new Rolex and Hublot shops in Bangkok (open in May) in my opinion.

There are 2 sub-components in inventory.

1. At cost
2. At net realiasable value

for example, Fy2014 the @cost value is $168.787; @realiasable value is $90,493.

Hence, we need to find out if [/code]the inventory increase by $30.5M is mainly from @cost or @realiasable or both.

The quarterly report does not such breakdown.

(06-08-2014, 10:42 AM)rickytj Wrote: not so good in my opinions:
1) inventories went up by SGD 30.5 mln, a very high number considering a challenging luxury watch environment. What's the reason behind this? is this for the non-watch related businesses?
2) as a result working capital investment was SGD 40.8 mln, almost a record high
3) as a result net cash dropped 43%
4) as a result days of inventory outstanding jumped to 204 days from just 184 days last year.

ability to be profitable is one thing, ability to manage working capital and still generate reasonable cash flow under challenging environment is another thing. I think the later one is more crucial at this moment.