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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The Hour Glass – Digitalise or Die

The Hour Glass - Digitalise or Die

At a backdrop of lower revenue and lower profit after tax, The Hour Glass has proposed a first and final dividend of 2 cents. At current closing price of S$0.66, this translates to a dividend yield of 3.03%. I am not surprise by the financial results but I was surprised by how well The Hour Glass manages the economic downturn.

We all know that The Hour Glass deals with luxury watches and given the current economic headwinds, the company should do very badly. But it didn’t.

The management reduced the company’s debt to equity ratio from 14.4 percent to 10.7 percent.

FY2017 FY2016 FY2015 FY2014 FY2013
Debt/equity ratio (%) 10.7 14.4 15.0 10.9 12.5

The company’s free cash flow is still positive with hoards of cash. The Hour Glass has a free cash flow of 57 million.

FY2017 FY2016 FY2015 FY2014 FY2013
Free Cash Flow ($’000) 57,113 10,453 (13,026) 53,066 1,505

Below is a quick glance of its financials. Revenue fell by 2%.

The Hour Glass - Digitalise or Die

Profit after tax fell by 7%.

The Hour Glass - Digitalise or Die

Net Asset Value (“NAV”) increased by 9% most likely after reducing its debt.

The Hour Glass - Digitalise or Die

Omni-Channel Strategy

In the annual report, The Hour Glass mentioned about Omni-Channel Strategy. This is the first time I heard of such term. I googled for the term “Omni-Channel Strategy”.

Omnichannel is a cross-channel business model that companies use to improve their customer experience. – Wikipedia

Companies that use omnichannel contend that a customer values the ability to be in constant contact with a company through multiple avenues at the same time. – Wikipedia

The Hour Glass will be rolling out their customer experience management platform in September.

Summary

The management of The Hour Glass seems to know the impact of digital watches (android and apple watches) against traditional watches or luxury watches. At this moment, I am not sure if the customer experience management platform will have an eCommerce component to compete with online shopping platforms such as Qoo10 or Shoppee. My personal opinion is that The Hour Glass is still at the early stage of digitalising its business and I hope it is on the right track.

In the event The Hour Glass is able to transform its business, this should unlock further value within this company. The Hour Glass currently makes up 4% of my stock portfolio.