The Hour Glass

[Choon]

28 June - Buyback continues.

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[Choon]

8 Jul - buyback continues.

After a break between 29Jun-2Jul during which prices were trading above $1.50.

$1.50 appears to be the company's price ceiling for share buyback.

If share price valuation is a consideration for the company in doing share buyback and if the company is valuing from a dividend yield perspective and if the company is expecting a sustainable dividend payout of 6cts/share/year, then it means the company is valuing itself at 6/150 = 4% dividend yield.

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[Choon]

13 Jul - buyback continues. At just below $1.50.

The latest Chairman Statement has not shared the company's motivation for buying back shares.

If there are VBs attending the AGM, please ask.

I guess one good outcome arising from this recent spate of share buybacks is that the Board would not be able to accept any privatisation bid at lower than ~$1.50 in the next one-two years.

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[dydx]

I guess one good outcome arising from this recent spate of share buybacks is that the Board would not be able to accept any privatisation bid at lower than ~$1.50 in the next one-two years.

A very good point indeed! A relevant question : Why would the company buy back its own shares in sizeable volume at near record share prices?

Just yesterday THG bought back another 1,403,000 shares at an average price of $1.43042/share..
https://links.sgx.com/1.0.0/corporate-an...d5322e2ad7

[Choon]

The Hour Glass (“THG”) 42nd AGM - 28 Jul 2021

Rough notes of meeting

Much remains the same. 

Family-Owner-Mgmt remains grounded in the mission of advancing watch culture, focusing on the basics of good retailing, focusing on training high-quality staff, focusing building a strong alignment with brands. Importantly, remains grounded and wise in not blindly-following industry trends and rushing into new business (see Q7). 

What seems to have changed - and for the better - is (i) an upward shift in the economics of luxury watch retailing and (ii) THG's business model has become more robust with higher earnings power. (see Q11 and Q13)    

Below notes are taken in haste. One should validate himself.

 

1)   Q: Coy inventory level has dropped. Can we still receive sufficient stock from brands?

A: Yes, have been able to receive support. 2HFY21, yoy increase in sales momentum to the tune of 23%.

 

2)   Q: Rental situation?

A: We don’t have habit of commenting on yoy rentals.

 

3)   Q: Landlords?

A: They have generally been supportive. Provided some form of relief. They are open in discussing lease renewals. Many have reset base rentals. In HK and SG, we have locked in base rentals below our historical averages. Pre-COVID, rentals were just on a rising trend.

 

4)   Q: Business in Malaysia?

A: Mgmt is concerned about delta variant in SEA and Australia. Will affect biz somewhat and health of our front-of-house team. We have offered days-off for staff who take vaccine shots. Last year we coined the term “Safety is the New Luxury”. Continue to maintain low contact sales activity in KL. Confident that once MCO is lifted, sales activity will resume quite strongly. Malaysia boleh.

 

5)   Q: Future of luxury?

A: Polarisation of industry (brands). THG is fortunate to be anchored with winners of the industry. And we gained organic market share across the board. Lockdown gave people time to spend time on internet to research. Watches not just a luxury good anymore, but have taken a solid stand as a collectible item. People looking for things that have a store of value. Not just watches, but also jewellery, sneakers, trading cards. We are attracting much younger clientele. This means that the industry is growing in right demographics. Results will follow if we focus on our mission of advancing watch culture.

 

6)   Q: E-commerce?

A: E-commerce pilot with Tudor is at its infancy. Wont comment too much. Most importantly, we aim to be channel-agnostic. We aim to be omni-channel.

 

7)   Q: Pre-owned watches business?

A: Many implications of extending ourselves into this business. Pre-owned versus brand-new, need a different skill set to succeed. And different markets have different conditions determining whether you can do well  in this business. What works in Europe and US may not work in Asia now. We will keep monitoring and studying this business but won’t be jumping in for the time being.

 

8)   Q: When travel resumes, how much will demand be affected

A: Believe in next 12-18 months, free flow of travel won’t be pervasive. We have this 12-18 months to form a connection with our clients, that even if travel resume, they continue to buy from us. Even if travel resume, we believe that DD>SS. We are not overly bothered if travel restarts.

 

9)   Q: Property business (rental income to balance out cyclability of watch business)?

A: If you follow us over past 40 years, we acquire real estate to operate out of them. It is not our intention to balance out cyclability of watch business with rental income. Past two years, nice step-up in our earnings profile. Prior to past two years, from 2010-2020, you see that our annual income is SGD 50-60M each year. Cyclicality is less of an issue with watch business, if we manage our business well.

 

10)Q: Overpaying for properties?

A: Value of property is all relative. From time to time, we have to overpay above valuation of bankers. We been operating long enough to know what is a valuable gem. For 139 Collins Street, we may need to take a one-time charge in FY21. But we are confident it is a gem.

 

11)Q: Dividends / share buybacks / rise of stock price?

A: We don’t comment on stock price. We recognize that the economics of our business has altered. Our approach is to return value through dividends and share buybacks.

 

12)Q: Dividend guidance?

A: We don’t provide a dividend payout target. In FY21, it was 50%, pleasantly surprising many shareholders.  FY20 was 40th b-day for THG. We planned 4cts for 40 years, but because of COVID, we held back the 2cts special dividend to conserve cash. Interim dividend of FY21 was the postponed special dividend of FY20. Going forward, we will assess the situation and will not state a dividend policy beforehand.

 

13)Q: Share buyback? Motivation?

A: We are confident that all our strategic biz units have performed well. We have strong alignment with brand partners and the support they gave us. We are confident that certain business trends are here to stay. So we see value in the company and believe in long-term sustainability of performance. We are value-invested operator and investor. We believe we are deploying capital in the right way.

 

14)Q: Diversity?

A: We believe it is most important to bring the right candidate to the Board.

 

15)Q: Donations?

A: This is a foundational tenet of THG. We are studying establishment of a corporate foundation to bring a lasting impact to our corporate philanthropy.

[Choon]

As the company continues its share buyback, Fidelity sells bit by bit (below 10% now).

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[weijian]

The Hour Glass (“THG”) 42nd AGM - 28 Jul 2021

Rough notes of meeting

Much remains the same. 

Family-Owner-Mgmt remains grounded in the mission of advancing watch culture, focusing on the basics of good retailing, focusing on training high-quality staff, focusing building a strong alignment with brands. Importantly, remains grounded and wise in not blindly-following industry trends and rushing into new business (see Q7). 

What seems to have changed - and for the better - is (i) an upward shift in the economics of luxury watch retailing and (ii) THG's business model has become more robust with higher earnings power. (see Q11 and Q13)    

An official version of the AGM minutes, not too far from Choon's (thanks Choon for sharing notes selflessly)

The share buyback has been the most interesting feature for the OPMI in the last 1 year. At 1.3-1.5x of NAV purchases, the company is demonstrating that it values the intangible know-how/business relationships to be worth more than 0.3-0.5x of what is tangible.

Whether this is value or not, it will be for the future to judge. Generally, share buybacks are at their peak during peak prices and vice versa, and THG shareholders would hope that this isn't true over here.

MINUTES OF THE 42ND ANNUAL GENERAL MEETING OF THE HOUR GLASS LIMITED HELD BY WAY OF ELECTRONIC MEANS ON WEDNESDAY, 28 JULY 2021 AT 10.00 A.M

With regard to the question on the motivation behind the Company’s share buybacks, especially since February 2021, Mr Tay stated that from the Board’s and Management’s perspective, they saw value in the Company and its business, and believed in the long term sustainability of the Group’s financial performance. By way of elaboration:
(i) the Group’s strategic business units had performed well through the last 12 months, 
(ii) there was a strong alignment on values and goals with principal brand partners, from which the Group had received encouraging support,
(iii) the Board and Management were confident that certain structural and operational shifts in the industry, business and markets were here to stay even when the world reverts back to its pre-COVID form,
(iv) the Board and Management had confidence in the current and future crop of general managers in place, and 
(v) whilst the COVID-19 Delta variant may cause disruptions from time to time, the Group had learnt to operate within the confines of the respective trading restrictions and had been able to continue to manage its business well in that regard. 

Hence, as a management group, the Company and the Board, being value oriented operators and investors, believed in deploying capital in the right way.

https://links.sgx.com/FileOpen/Minutes%2...eID=681790

[dydx]

Two generations of Tays have built the business to what it is now, supported by public capital. The group now holds valuable property assets on top of a very strong and profitable, cash-based regional retail business, which is supported by long-term business relationships with many renowned, venerable watch brands, some of which are privately-owned. The Tays now have the option to bring the business private, and the family can probably afford to do so now. It is conceivable that they may just follow the examples of some of the very rich families.

[Big Toe]

At this juncture it is extremely difficult to value THG. The pandemic has enabled THG to do brisk sales and allowed it to clear old stock. When will the surge in interest wane, no one knows. Or will it be sustained for longer just like the pandemic? Hobbies and pets did well while travel and f&b did very badly.

What will the landscape look like in the longer term is uncertain for a number of businesses including THG, my best guess it will continue to do well when activities are limited and when the viruses no longer remain a threat, it will do so so.

[weijian]

At this juncture it is extremely difficult to value THG. The pandemic has enabled THG to do brisk sales and allowed it to clear old stock. When will the surge in interest wane, no one knows. Or will it be sustained for longer just like the pandemic? Hobbies and pets did well while travel and f&b did very badly.

What will the landscape look like in the longer term is uncertain for a number of businesses including THG, my best guess it will continue to do well when activities are limited and when the viruses no longer remain a threat, it will do so so.

My guess is that it will probably be somewhere in between. We hope that the memories of the last crash in 2015 are still fresh enough for the luxury brands. Personally, I would think that observing the inventory turnover would be good evidence of a permanent change in landscape. The curse of a value investor is that he/she seldom extrapolate things to the sky (hence lack the imagination for trees that may grow to the sky).

One of the reasons why equity investing could be (net) profitable, is because there is difficulty and uncertainty that the investor has to bear and overcome. It certainly helps that the Operator has a track record over the long term.