Background: The Hour Glass (THG), established since 1979, is a leading luxury watch retailer in Asia. It represents over 60 brands across 25 boutiques in nine cities in the Asia Pacific.
Recent development: Revenue grew by 7% YoY in FY Mar11 against an already good year in FY Mar10. The corresponding 29% YoY rise in FY Mar11 net profit reflected an improvement in margins. Although THG usually does not receive much attention, this stellar performance did not go unnoticed as its share price rose steadily from pre-results of $1.01 to a recent intra-day high of $1.33.
Positive consumer sentiment tempered with cost inflation. The strong consumer demand for luxury watches in Asia has benefited THG. However, inflationary pressures on staff and rental cost are potential threats. THG has done well in controlling its cost, posting an increase in margins in the face of such pressures.
Strong and stable financials. THG generated strong and stable operating cash flows of $20.6m per year in FY Mar10 and FY Mar11. It holds a quality balance sheet with $191m in inventory and $36.4m in net cash, out of its total equity of $257m. Inventory is stated at the lower of cost or net realisable value. We reckon the market value of the inventory should be more than its book value.
Comparable to peers after rise in share price. After the recent increase in its share price, THG’s valuation measures appear comparable to its peers, trading at 1.1x P/B and trailing PER of 6.6x. However, watch retailers do seem to trade at lower valuation levels compared to fashion and lifestyle retailers like FJ Benjamin and Osim, although all are driven by similar macro factors.
Price-to-earnings: 6.6x
Price-to-NTA: 1.1x
Dividend per share / yield: $0.05 / 4.2%
Net cash/(debt) per share: S$0.16
Net cash as % of market cap: 13.0%
Share price S$1.20
Issued shares (m) 234.332
Market cap (S$m) 281.20
Free float (%) 36.8
Financial YE 31 Mar
YTD change +17.7%
52-wk price range S$0.77-1.33
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