The Hour Glass

[crabcrab]

Swiss watchmaking in January 2011
Good start to the year

Watch exports started the year 2011 in very good shape. In January, their value was 1.1 billion francs. This figure exceeds by 16.9% the result for January 2010, the month in which watch exports began their recovery after a marked decline in 2009.

Exports of gold watches stood out by an increase of twice the average rate, while steel watches lagged slightly behind.

In volume terms, the rate of increase for the category of other materials was also well above that of other finishes. In total, Swiss watch manufacturers shipped 300,000 more timepieces abroad than in 2010.
Watches costing less than 200 francs (export price) followed the average trend and clearly influenced the overall rise in the number of timepieces exported. The 200-500 francs category continued its very steady progression, while the 500-3,000 francs segment showed little change compared to 2010. Timepieces costing more than 3,000 francs saw their value increase by 25.1%.

Watch exports to Hong Kong dipped after 13 months of steady increases. This is no doubt an isolated variation, with little significance for the general trend, which remains very good on this market and is set to continue in 2011. Indeed other Far Eastern markets such as China, Singapore and South Korea recorded double-digit rates of growth. January was also an excellent month for the United States. In Europe, France registered high growth, largely attributable to transit, while Italy showed a downturn (-5.0%) and Germany stagnated (+0.6%). In the Middle East, the United Arab Emirates recorded one of the highest increases on the planet.

Source: FHS

[dydx]

THG has just released a set of rock-solid results for FY11 (ended 31Mar11) together with a higher $0.05/share Final dividend (vs. $0.035/share in FY10)....
http://info.sgx.com/webcoranncatth.nsf/V...A0016305E/$file/THGL_4Q_FY2011.pdf?openelement

Based on FY11's EPS of $0.181, and the last done share price of $1.00, Mr Market is now pricing THG at a historical PER of only 5.5x!! This cannot be right for a gem-grade and leader-status regional watch retail enterprise, especially THG's NAV/share is already $1.065 as at 31Mar11.

[Nick]

Hi dydx,

Unless I am mistaken, HrGlass is a retailer and distributor, yet it is able to maintain double digit ROE and margins exceeding 5% with no leverage. This doesn't signify a cut-throat biz model evident in most retailers/distributors. I was wondering what tangible moats do HrGlass have which negates such risk over the past 5 years ? Thanks.

[Musicwhiz]

Business Times - 25 May 2011

Hour Glass profit hits record $42m on higher margins

But it warns that inflation pressures could drive up staff, rental costs

By FELDA CHAY

THANKS to higher gross margins and higher revenue, luxury watch group The Hour Glass reported record net profit for the full year ended March 31, 2011.

The group's 12-month net earnings jumped 29 per cent to $42.4 million, from the preceding financial year's $32.8 million.

This translates into earnings per share of 18.1 cents, as compared with 14.08 cents previously.

Revenue went up 7 per cent to $517.6 million, which The Hour Glass attributed to the expansion of its multi-brand retail network.

The company has recommended a first and final dividend of five cents per share, up from 3.5 cents previously.

On its prospects, The Hour Glass said that it believes there is sustained demand for timepieces in the region, with the exception of Japan. According to its website, The Hour Glass has boutiques in Singapore, Malaysia, Thailand, Hong Kong, Japan and Australia.

However, it cautioned that inflationary pressures could drive up operating costs, 'especially those related to personnel and rental'.

The group expects to remain profitable for the current financial year.

For FY2011, gross margins improved to 22.4 per cent from 20.1 per cent a year ago. This was due to the implementation of various marketing programmes throughout the year, as well as more positive trading conditions, said The Hour Glass.

Rental expenses rose 8 per cent to $12.5 million, while salaries and employee benefits went up 7 per cent to $32.4 million. Overall, total costs and expenses edged up 5 per cent to $468.3 million.

Net asset value for the year rose to $1.0651, up from $0.9256. This compares with its unchanged closing share price of $1.01 yesterday.

As at March 31, the company had cash and cash equivalents of $50.7 million, compared with $50.5 million a year ago.

[dydx]

I was wondering what tangible moats do HrGlass have which negates such risk over the past 5 years ?

Perhaps this old BBC interview with Jannie Tay will give you a good idea on THG's success factors.....
http://www.bbc.co.uk/news/business-11866641

[Nick]

I was wondering what tangible moats do HrGlass have which negates such risk over the past 5 years ?

Perhaps this old BBC interview with Jannie Tay will give you a good idea on THG's success factors.....
http://www.bbc.co.uk/news/business-11866641

Does it have exclusive distribution rights ? I always wondered what is stopping other companies from doing the same ie selling high end watches ? But the numbers do not lie so there must be a reason for it. I hope they re-instate interim dividends in FY 12.

(vested)

[dydx]

Based on the last done price of $1.05, THG has traded up steadily and so far up $0.05 - incidentally, also the full declared $0.05/share Final dividend amount - since the release of the FY11 full-year results on 24May11, during lunch hours. This is indeed a good showing!

A relevant question: Would Mr Market be willing to re-rate THG further upwards towards its full justified fair value, which rationally speaking should at least be at a decent premium over its per share NAV of $1.065 (as at 31Mar11)?

If we assume THG's business would do as well in FY11, and the net profit would add another $0.181 (or more) in EPS, we are talking about the per share NAV would potentially rise to (or may cross) $1.20 (after accounting for the $0.05/share Final dividend for FY11) by 31Mar12 - which is just a little over 10 months away - before the declaration/payment of another likely similarly good dividend for FY12.

Let's see how Mr Market would do its magic!

[dydx]

I thought it is useful to make a comparison between the just released Cortina Watch's FY11 (ended 31Mar11) full-year results.....
http://info.sgx.com/webcoranncatth.nsf/V...D003C4B41/$file/CHLFY2011.pdf?openelement [Cortina's results]
with that of THG's.....
http://info.sgx.com/webcoranncatth.nsf/V...penelement [THG's results]

Apart from quite similar GP Margins, Cortina lost out to THG in practically all other key measures - business scale/revenue, PBT and PBT Margin, NP and NP Margin, ROE, Inventory Turnover, B/S strength, Liquidity and Gearing (Cortina is geared; whereas THG has a large nett cash reserve), and even in Rental Expense (a key fixed expense item). It is like a 'boy' vs. 'man'.

[dydx]

It appears that buying - or more like accumulation - of THG shares has been continuing since the company released its FY11 (ended 31Mar11) full-year results on 24May11. This becomes even more apparent today when the overall market has turned depressed in the morning because of a big fall of the Dow overnight. This is certainly a good sign!

I have this question: Is there a more profitable - in terms of the absolute GP and NP amounts - local and regional retail business than THG listed on the SGX? My answer: "No."

[Nick]

Share price closed at historic high of $1.11 (up 4 cents) with 280 lots traded ! Will Mr Market continue to allow THG to trade above its NAV at a decent premium ?

(Vested)