The Hour Glass

[shanrui_91]

Cortina is so valuable that even Henry Tay wants to buy their shares! I dont understand why people like Hour Glass when their key director is buying shares in their competitors

Sale per store, inventory turnover and profit margin are the 3 most important metrics when assessing a retailer as such.

2011
Sale per store('000) - THG: 19908, Cortina: 14087
Inventory Turnover - THG:2.10x, Cortina: 1.47x
Net Profit Margin - THG:8.34%, Cortina:4.24%

2012
Sale per store('000) - THG: 23346, Cortina: 16183
Inventory Turnover - THG:1.99x, Cortina: 1.44x
Net Profit Margin - THG:9.25%, Cortina:6.44%

(vested)

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D: (Threats)
-One day when China open up its own domestic mkt by taking away their luxury tax. (no china tourist)
-If u look at the trend, many watch brands are having their own boutique here recently (Blancpain, Breguet, Chopard, Frank Muller, IWC, Hublot, JLC, Patek Philippe,Richard Millie, Vacheron Constantin,Paiget etc )since MBS has been build,go take a walk there to feel for yourself. These brand were not here before the casino is build.There are also other mid range brand like RADO,Omega,U-boat,Tag heuer,Azimuth,Bell&Ross and many more have already set up their own store here in sg.
Panerai set up their boutique at ion a few month back.

I think you have identified the achilles' heel, can't think of any bigger threat than you have listed. good to have a few watch collectors around to borrow circle of competence

[Boon]

SWOT Analysis:

A: (Strength)
1. Proven and experienced team
2. Healthy balance sheet
3. Established relationship with Suppliers (distributorship rights)
4. Established relationship with Customers
5. Slow and cautious expansion

B: (Weakness)
1. Reliance on long-term relationship built with suppliers and customers
2. Expanding very cautiously and slowly (can be a strength too)
3. Susceptible to strengthening of CHF
4. Poor investment record in non-core business- GEMS TV, and the mistakes in the 1990s

C: (Opportunities)
1. Buoyant demand for luxury watches continues.
2. Opportunities for regional expansion
3. Possibility of a consolidation of the watch retail industry – opportunity to acquire other companies.

D: (Threats)
1. Competition coming from Cortina, Sincere, Dickson and other smaller players
2. Loss of distributorship rights.
3. Forward integration by Watch Makers – opening its own retail outlets.
4. Narrowing of price difference between watches sold in China and Singapore due to lowering of taxes imposed on luxury goods by the China authority.

More comments please !

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D: (Threats)
-One day when China open up its own domestic mkt by taking away their luxury tax. (no china tourist)
-If u look at the trend, many watch brands are having their own boutique here recently (Blancpain, Breguet, Chopard, Frank Muller, IWC, Hublot, JLC, Patek Philippe,Richard Millie, Vacheron Constantin,Paiget etc )since MBS has been build,go take a walk there to feel for yourself. These brand were not here before the casino is build.There are also other mid range brand like RADO,Omega,U-boat,Tag heuer,Azimuth,Bell&Ross and many more have already set up their own store here in sg.
Panerai set up their boutique at ion a few month back.

I think you have identified the achilles' heel, can't think of any bigger threat than you have listed. good to have a few watch collectors around to borrow circle of competence

Hublot, Patek Phillippe and Frank Muller at MBS are Mono-Brand Boutiques of THG, Cortina and Sincere respectively, if I am not wrong?

Will China Cut Luxury Tax ? See attached report from HSBC Global Research.

[Boon]

Opinions split over “real will” to cut luxury Taxes

Written by Doug Newhouse
Friday, 13 April 2012 09:08

Opinions remain split on whether Chinese Government ministers will move to cut the country’s circa-30% luxury tax levels, as reported by the Wall Street Journal.
The newspaper claimed this week that China’s Ministry of Commerce wants to dissuade travelling Chinese from spending so much money abroad - last year visitors from Mainland China to Hong Kong grew by 23.9% to 28.1m, with this group spending more than $30bn in Hong Kong alone and much of this expenditure on luxury goods.

But ‘expert views’ appear divided on whether these ‘claimed discussions’ will lead to any luxury tax cuts or not and several told The Business today that any reductions would only benefit luxury goods companies in the Chinese domestic market if these goods become more readily accessible.

Currently there are no real luxury taxes in Hong Kong and any move towards a similar situation in Mainland China could theoretically benefit luxury goods companies more than the Chinese Government’s coffers.

Another option discussed by the newspaper and referred to by several leading suppliers and retail sources is the possibility of more tax friendly retail zone initiatives, such as those established in the City of Sanya in China. Downtown (China Duty Free Group) and airport retail operations (HN DFS at Meilan Airport) in the south China island city are said to be performing very strongly. However, this new scheme is still being monitored carefully by the government.

Some say that maintaining the status quo of spending abroad alongside this domestic option might also prove less controversial from a social standpoint – especially considering the government’s sensitivity towards the great divide that already exists in the country between the ‘haves’ and the ‘have nots’. Some sources said highlighting this divide any more conspicuously than necessary might bluntly not be such good politics.

By 2015 and on current projection levels, the Chinese Government expects 100m of its nationals to venture abroad, making China the world’s biggest outbound tourism market. Spending by Chinese overseas travellers could grow to more than $110bn a year, of which $80bn could be spent within Asia, according to the World Bank.

But just as the explosion of Mainland Chinese visitors has reinvigorated the international duty free and travel retail business, any sudden downturn in this business caused by a dramatic slowing of the Chinese economy remains a concern for some.

However, others point to an additional explosion in outbound travel and spending in the mid-Pacific and on the US West Coast if the US Government decides to implement much easier visa application processes than the cumbersome ones that exist today. A visa-waiver policy has also been discussed at senior government level, with President Obama taking a notable personal interest in this matter.

http://www.trbusiness.com/index.php?opti...&Itemid=11

[orang]

I want to ask other forumers what is the fair value of THG? In my opinion and with the help of one friend who's really goo on report analysis i will say around 2.50.

(Vested)

Using DCF valuation method with very optimistic inputs, 2.50 is posssible.

err....what possible number can we get with realistic inputs?

[Boon]

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D: (Threats)
-One day when China open up its own domestic mkt by taking away their luxury tax. (no china tourist)
-If u look at the trend, many watch brands are having their own boutique here recently (Blancpain, Breguet, Chopard, Frank Muller, IWC, Hublot, JLC, Patek Philippe,Richard Millie, Vacheron Constantin,Paiget etc )since MBS has been build,go take a walk there to feel for yourself. These brand were not here before the casino is build.There are also other mid range brand like RADO,Omega,U-boat,Tag heuer,Azimuth,Bell&Ross and many more have already set up their own store here in sg.
Panerai set up their boutique at ion a few month back.

I think you have identified the achilles' heel, can't think of any bigger threat than you have listed. good to have a few watch collectors around to borrow circle of competence

Hublot, Patek Phillippe and Frank Muller at MBS are Mono-Brand Boutiques of THG, Cortina and Sincere respectively, if I am not wrong?

Will China Cut Luxury Tax ? See attached report from HSBC Global Research.

A Value Added Tax (VAT) of 17% and a Luxury Tax (Consumption Tax) of 20% is applicable for import of luxury watches into China. The current debate in China is over whether to cut the Luxury Tax, and nothing has been mentioned about the VAT. Therefore even if the Luxury Tax of 20% is totally abolished, the VAT of 17% will remain. The reduced price difference between luxury watches sold in China and Singapore would, in my opinion, still remain significant enough to attract buying from PRC visitors.

Please check up the following website if you are interested to find out import duty & taxes for importing Luxury watch into different countries:

http://www.dutycalculator.com/popular-im...ury-watch/

If you are suspicious over its credibility, double check with figures published by KMPG on the following link (remember to click on SHOW on the right-hand-side to see the footnotes.)

http://www.kpmg.com/Global/en/WhatWeDo/T...table.aspx

I have tried China, Singapore, Hong Kong and Australia. The results are pretty consistent.

[Boon]

SWOT Analysis (Revised)

A: (Strength)
1. Proven and experienced team
2. Well located retail outlet network
3. Healthy balance sheet
4. Established relationship with Suppliers (distributorship rights)
5. Established relationship with Customers
6. Slow and cautious expansion (can be a weakness too)

B: (Weakness)
1. Reliance on long-term relationship built with suppliers and customers
2. Expanding very cautiously and slowly (can be a strength too)
3. Susceptible to strengthening of CHF
4. Poor investment record in non-core business- GEMS TV, and the mistakes in the 1990s

C: (Opportunities)
1. Buoyant demand for luxury watches in the region.
2. Opportunities for regional expansion through organic growth.
3. Opportunities to acquire other companies (not necessary listed companies) in the region-Singapore, Hong Kong, Macau, and possibly China and Taiwan. (This is only good to shareholders if the acquisition is value accretive).

D: (Threats)
1. Competition coming from Cortina, Sincere, Dickson, Emperor Watch, Hengdeli and other smaller players
2. Loss of distributorship rights.
3. Forward integration by Watch Makers (Example: Richemont and the Swatch Group) – opening its own retail outlets.
4. Narrowing of price difference between watches sold in China and Singapore due to lowering of taxes imposed on luxury goods.
5. Emergence of more integrated resort with casino in the region.

[crabcrab]

The Hour Glass ($1.35) - In any case, technical chart shows that THG is poised for a breakout from anytime next week. A breakout from current level will bring it to $1.45 level. The last time that a listed retail firm that has about the similar current EPS as THG is Robinson Then it is traded around $3.50 per share..... When Sincere Watch was taken over by Peace Mark at around $2.20 per share, net profit was around $23 million (Total issued of Sincere Watch shares ard 210 millions share then) if I remember correctly.... THG net profit is currently around $56 million and yet trading at only $1.35...........

[pianist]

hmm..doesn't sound right

[dzwm87]

The Hour Glass ($1.35) - In any case, technical chart shows that THG is poised for a breakout from anytime next week. A breakout from current level will bring it to $1.45 level. The last time that a listed retail firm that has about the similar current EPS as THG is Robinson Then it is traded around $3.50 per share..... When Sincere Watch was taken over by Peace Mark at around $2.20 per share, net profit was around $23 million (Total issued of Sincere Watch shares ard 210 millions share then) if I remember correctly.... THG net profit is currently around $56 million and yet trading at only $1.35...........

Share price alone means nothing but I am assuming you are referring to P/E comparison?

Might not be a fair comparison given Sincere & other HK-listed watch retail firms have more exposure to the China market. Probably it will be better to compare it with Cortina. If the P/E gap is so huge, there has to be a reason behind it and in order to realise the value, we had to be convicted of a certain "contrarianism" which we feel will outperform the common market thinking.

Moreover, HrGlass seems to be relatively illiquid - similar to Vicom. You don't see a lot of bid offer. Guess a majority of the investors are mainly long term holders.

[crabcrab]

The Hour Glass ($1.35) - In any case, technical chart shows that THG is poised for a breakout from anytime next week. A breakout from current level will bring it to $1.45 level. The last time that a listed retail firm that has about the similar current EPS as THG is Robinson Then it is traded around $3.50 per share..... When Sincere Watch was taken over by Peace Mark at around $2.20 per share, net profit was around $23 million (Total issued of Sincere Watch shares ard 210 millions share then) if I remember correctly.... THG net profit is currently around $56 million and yet trading at only $1.35...........

Share price alone means nothing but I am assuming you are referring to P/E comparison?

Might not be a fair comparison given Sincere & other HK-listed watch retail firms have more exposure to the China market. Probably it will be better to compare it with Cortina. If the P/E gap is so huge, there has to be a reason behind it and in order to realise the value, we had to be convicted of a certain "contrarianism" which we feel will outperform the common market thinking.

Moreover, HrGlass seems to be relatively illiquid - similar to Vicom. You don't see a lot of bid offer. Guess a majority of the investors are mainly long term holders.

Being illiquid is one of the reasons till now that share price has to price at a discount off its real value as it could not attract funds.... Slow & steady is good..... However, dividend yield from THG investment remains good till now...... Hopefully more to come