Goodbye The Hour Glass

Goodbye The Hour Glass

The Hour Glass is a stock with deep value and it currently makes up 3% of my stock portfolio. This company had been consistently paying investors dividend over the years. In fact, The Hour Glass had increased their dividend to 3 cents from 2 cents last year.

The luxury sector has been suffering from sluggish demand over the past few years and just when things start to pick up in 2019, the economy was hit by the COVID-19 outbreak which impacted the tourism industry and indirectly the luxury retail sector. The Hour Glass who had over 40 boutiques in twelve key cities in the Asia Pacific region will surely be impacted by the COVID-19 outbreak.

Even though The Hour Glass had recognized the uptrend of eCommerce in the year 2017 and thus launched their Omni-Channel Strategy, The Hour Glass is still very focused on physical stores. I am not aware they have any online stores to sell their luxury watches. This is actually a disadvantage to The Hour Glass in situations like now whereby tourists from certain countries are banned from travel and shoppers shun shopping malls. Tenants like The Hour Glass still have to pay rent for their physical stores and of course their staff salaries.

The Hour Glass usually trades at S$0.82 which is 3.8% above premium to the Net Asset Value of S$0.79 per share. However, due to panic, the market starts selling off stocks. As of 6th March 2020, The Hour Glass closed at S$0.71.

Based on the current price of S$0.71 and historical dividend payout of 3 cents, the current dividend yield is 4.23%. There is a high chance The Hour Glass will not retain its highest payout of 3 cents should the COVID-19 situation persists.

Goodbye The Hour Glass

It is unknown how long the current COVID-19 situtation will last. For the above reasons, I have divested The Hour Glass.

Goodbye!

The Hour Glass Increases Dividend For The First Time

The Hour Glass Store

The Hour Glass is one deep value stock that has been paying investors consistent dividends over the past decades. Currently, The Hour Glass makes up 3% of my stock portfolio. Despite the company holding lots of cash, The Hour Glass has been paying investors a consistent pay out of 2 cents over the past few years. With the recent runup in stock price from S$0.65 to S$0.82, I thought I share some updates that I read about on The Hour Glass.

The Hour Glass which deals with luxury watches has been suffering from the economy downturn over the past few years (2015 to 2018). Recently, The Hour Glass has announced a decent set of latest financial results and for the first time, proposed to increase its first and final dividend pay out from the usual 2 cents to 3 cents.

The group’s revenue climbed 4% to $720.9 million in FY2019 and profit after taxation rose 41% to $71.4 million. As you can see below, the financial results for FY2019 is excellent with debt being its lowest level at $15.0 million and a free cash flow of $47.0 million.

After experiencing sluggish demand for some years, the trend for luxury watches in Asia picked up and stabilised during the course of FY2019.

Financial ResultsFY2019 ($’000)FY2018 ($’000)FY2017 ($’000)FY2016 ($’000)FY2015 ($’000)
Revenue720,925691,645696,056707,525734,938
Net Asset Value560,244507,140478,477439,872408,730
Cash and cash equivalents180,971180,496124,84993,89898,332
Loans and Borrowings14,97249,65551,16063,42261,187
Free Cash Flow46,93174,18157,11310,453(13,026)

The Hour Glass is currently trading at S$0.82 which is 3.8% above premium to the Net Asset Value of S$0.79 per share.

Financial RatiosFY2019FY2018FY2017FY2016FY2015
Gross margin (%)27.024.222.723.722.6
Inventory turnover ratio1.81.91.81.71.9
Debt/Equity Ratio (%)2.79.810.714.415.0
Earnings per share (cents)9.997.076.917.428.22
Net asset value per ordinary share ($)0.790.720.680.620.58

I like the following quote from Henry Tay in the FY19 Annual Report.

“Trying to understand is like straining through muddy water. Have the patient to wait. Be still and allow the mud to settle. – Lao Tzu”

What Henry Tay meant was the with the rise of e-Commerce, The Hour Glass  thought they will be threatened by it. However, as time goes by, they realise e-Commerce only cater to the general crowd. What The Hour Glass stands out is that they cater to premium customers.

The Hour Glass Benefits From Revived Demand From Chinese Shoppers

The Hour Glass Benefits From Revived Demand From Chinese Shoppers

The Hour Glass has been suffering from the downtrend in the luxury goods market in both Hong Kong and China due to the clamp down of corruption from the Chinese government since 2015. This can be seen from the share price where it fell from its highest peak of S$0.88 to around S$0.71. And yes, I was vested prior to the plunge in share price.

The Hour Glass currently makes up 3% of my entire stock portfolio. Re-capping my reasons to stay invested:

  • Simple luxury watch business
  • Good management
  • Consistent dividend
  • Consistent profitability and performance (Revenue, Profits and NAV)
  • Low debt servicing ratio

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