The Hour Glass

[Choon]

think as long as THG continues to do well, and increase their dividends payout in a sustainable manner, value-investors will be happy to hold forever!

True.

Where I am coming from is if management does a bit of investor relations - just the minimum - say hosting a 2hr call with sellside analysts after the half-year and full-year result announcements, perhaps this could help to increase institutional ownership of the stock and overtime bring the stock into the STI?

And what would be the benefit to the company and its long-term shareholders? I reckon the following:

1) Just-In-Case. Just-in-case THG needs to raise funds from the market one day, if the share price is at the current $2, maybe THG need to price its rights at $1.80? But it the share price is at a higher price of $3, then it could price its rights at $2.70? Its all about maintaining a strong position so that the company has the optionality to raise $ from the market if it ever requires. 

2) Share compensation. Compensating employees (say boutique managers) with shares. I imagine this would help to foster a greater sense of belonging among associates. 

3) Natural selection of high-quality institutional shareholders. If THG is more promoted, perhaps it can attract the attention of very high-quality, decent,  long-term institutional shareholders - the likes of Capital Group and Silchester. And whats great about this? It just feels nice to be in good company, I guess.

[dreamybear]

Well, the AR indicates the presence of institutional shareholdings. In a recent business times article, THG appeared as one of the top stocks for institutional inflows. I guess the more the merrier.

I am trying to think from the controlling shareholders (CS) perspective ..... In general(not referring to THG or any stock particularly), CS run SGX listed stocks vs e.g. US listed stocks run by appointed CEO compensated partly by stock options, is there as much "motivation" in having a high share price ? If the former has a strong BS, no need for capital raising, stable consistent earnings, not really looking at acquisitions, having a fair/low share price may even offer more flexibility e.g. privatize/increase shareholdings. CS may also want to "manage" the shareholding structure to ensure better control. At the end of the day, I think CS may have diff priorities compared to OPMI ?

perhaps having a united group of OPMI shareholders would be a gd first step ....

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https://www.thehourglass.com/annualreport/2021/

Industrial stocks lead net institutional inflows, total returns in year to date
https://www.businesstimes.com.sg/compani...-year-date
<20 Singapore stocks with highest net insti inflows in 2021 to 9 Dec>

[weijian]

Consider that Watches of Switzerland (WOS) earned net profit of GBP101M (SGD162M) for YEMay2022. In comparison, THG earned PATMI of SGD155M for YEMar2022. Both are about the same size in terms of net profit.

Yet as at 2Dec2022,WOS has a mkt cap of GBP2.4B (SGD3.9B) based on share price of GBX 1,018 while THG has a mkt cap of SGD1.5B based on share price of SGD 2.08. WOS' mkt cap is about 3X of THG.

This is an interesting dichotomy. I took a look at WOS and it seems to suggest in terms of business, WOS is very similar to THG, ie. selling luxury watches via retail outlets. The only additional business lines WOS has are pre-own/online luxury watch platform and also jewelry retail.

There-after, I took the liberty to compare between THG and WOS via some high level operating metrics and capital structure/efficiency:

reference AR22 (THG: end 31st March, WOS: end 1st May), all in SGD million
THG vs WOS
Revenue: 1,033 vs 2,024
no of retail outlets: 51 vs 171
PATMI: 154 vs 167
Equity: 751 vs 590
Cash: 323 vs 173
Borrowings: 111 vs 195
Revenue/outlet: 20.3 vs 11.8
inventory turnover: 131days vs 106days
ROE: 20.5% vs 28.3%
ROIC: 28.6% vs 27.3%
NPM: 14.9% vs 8.3%

A few notes from this comparison:

- THG has a less efficient capital structure due to the fact that it also owns many of its retail units. This results in lower ROE and no surprises that this scales slower than asset light WOS. There is no secret whether any of THG's retail units will be monetized any time soon and so OPMIs are not really going to benefit from holding "prime commercial real estate".

- WOS has lower profit margin/revenue per store and lower inventory turnover days. This is probably related to the fact that WOS also sells jewelry (~10% of revenue) - cheaper SKU and hence turning over faster with less revenue per store. This is probably not a good apple to apple comparison for the differences seen.

- In summary, solely from a business model perspective, my intuitive guess is that THG should be trading at a smaller discount to WOS than what the market is currently trading at. But from the structure perspective - a majority shareholder controlling the shots/money and hence making the capital structure inefficient from a financial engineering standpoint, the discount might be warranted.

- Whether THG is cheap, I have no idea  But it does "look cheaper than WOS" but probably not as much as THG shareholders think.

[brattzz]

https://www.youtube.com/watch?v=II9Hdh9cBes

Rolex just changed the grey market!

"Certified pre-owned Rolex" tag, > 3 years old watches qualify, rolex's ADs can benefit from this market share!

General Market's comments:

Rolex SA gains nothing from the CPO. The entire cost, risk, and responsibility befall the AD. But growing frustration towards the brand from not being able to buy its pieces had an intangible cost Rolex SA wanted to remedy.

It’s really similar to when luxury carmakers started to do CPO programs 10-15 years ago. It increases inventory and buyer-traffic at the showroom, but also serves as a way to influence pricing and brand value/depreciation downstream. They can then market that by claiming their products depreciate at a lesser rate (or in the case of Rolex, appreciate at a greater rate) than competitors, as they now influence the sell prices on the used market.

Rolex are manufacturing a trade-up path for the preferred customers. This has always been there ad hoc informally from ADs, but now it’s going to be part of the company and AD business model. Certified preowned will always be the most expensive preowned Rolexes but at least this will help with the availability issue because it will encourage more churn in the market and streamline the upgrade path. I think the existing grey market dealers will adapt and it should eventually result in more watches being available right across the market over time. If this works, I can see other luxury brands like AP and Vacheron following suit.

[Choon]

Full year results for financial year ending Mar2023 released yesterday.

Comparing just 2H23 vs 2H22, revenue and operating profit dropped yoy by 1% and 11% respectively. Guess this is due to supply side constraints more than anything else.

Seems that the earnings jumps in recent years has come to an end, and probably due to constraints in supply.

Qn: THG has a share purchase mandate where the company is authorised to buy up to 10% of issued shares. Currently it has acquired about 7%. The limit of 10%, does it mean the company can purchase up to 10% in each year or cumulatively across time, the company can only purchase up to 10%?

[ghchua]

Hi Choon,

Qn: THG has a share purchase mandate where the company is authorised to buy up to 10% of issued shares. Currently it has acquired about 7%. The limit of 10%, does it mean the company can purchase up to 10% in each year or cumulatively across time, the company can only purchase up to 10%?

The mandate will lapse before the end of the next AGM. Therefore, the company will have to renew it at the next AGM to get another 10% again. No, its not cumulatively over time but rather, it is 10% for one year until the next AGM.

[Choon]

Hi Choon,

Qn: THG has a share purchase mandate where the company is authorised to buy up to 10% of issued shares. Currently it has acquired about 7%. The limit of 10%, does it mean the company can purchase up to 10% in each year or cumulatively across time, the company can only purchase up to 10%?

The mandate will lapse before the end of the next AGM. Therefore, the company will have to renew it at the next AGM to get another 10% again. No, its not cumulatively over time but rather, it is 10% for one year until the next AGM.

Thank you for the clarification.

[dydx]

FY23 results..
https://links.sgx.com/FileOpen/THGL_FY20...eID=760428
2H's revenue growth was down to just 1%, even though full-year revenue growth was still a respectable 9%. Share of results of associates - 49%-owned operations in Thailand and Vietnam held under THG Prima Times Co Ltd - at $21.4m (+37% YoY) for full-year still looks very encouraging. Group PBT at $219.6m (+7% YoY) - a new record! - is after absorbing (1) a $5.48m impairment loss on goodwill (related to the NZ operations acquired in 2020), and (2) a $4.53m provision on fair value loss on investment properties, with both items taken more like for accounting prudence.

The parting shot of the commentary says "The Group expects to continue to be profitable in the next financial year." While global uncertainties and negative economic outlook is expected to dampen consumer sentiment, it doesn't necessarily mean that this business under the current proven management will stop making a good profit.

[weijian]

The parting shot of the commentary says "The Group expects to continue to be profitable in the next financial year." While global uncertainties and negative economic outlook is expected to dampen consumer sentiment, it doesn't necessarily mean that this business under the current proven management will stop making a good profit.

"The Group expects to continue to be profitable in the next financial year" seems to be the main stay in most of the FY end commentaries, with the exception of FY20 (due to covid-19).

I think it is probably safe to skip reading too much into that part.

[brattzz]

https://investors.sgx.com/company-disclo...4TFWML1ONN

THG started 91 lots share buy-back at $1.98, indicating value at this price point...let see if they buy-in consistently!