Is It The Right Time To Bet on The Hour Glass Ltd?

The Hour Glass Ltd is a leading luxury watch retail group in Asia. Presently, The Hour Glass Ltd operates a retail network of 40+ branches in 7 countries namely, Singapore, Thailand, Malaysia, Australia, Vietnam, Japan, and Hong Kong where it is the official retailer of 50+ finest watch brands such as Rolex, Patek Philippe, TAG Heuer, Sinn, Cartier, Audemars Piguet, Hublot, IWC, and so on and so forth. 

In this article, I’ll share 9 major things to know about The Hour Glass Ltd before you invest. They are as follows: 

• Revenue
  The Hour Glass Ltd has recorded a marginal improvement in revenue in 2019 to S$ 720.9 million after having three years of contraction in sales to S$ 691.6 million in 2017 from S$ 734.9 million in 2015 arising from a fall in demand for luxury watches during the period. Thus, there was no sales growth attained by the Hour Glass Ltd in its recent 5 years. In fact, there is a slight 1.9% contraction in sales if we compare its sales figures for 2019 with its sales figures for 2015.
  
  
  

Source: Annual Reports of The Hour Glass Ltd

• Profitability
  For 2019, The Hour Glass Ltd has recorded S$ 70.4 million in earnings, a significant improvement from S$ 50 million per year levels achieved for the 3-year period from 2016 to 2018. Over the past 10 years, the group has maintained its net profit margin at around 8.0%. This means, it had generated S$ 8 in profits from every $ 100 in sales generated in the last 10 years.
  
  
  

Source: Annual Reports of The Hour Glass Ltd

Its Return on Equity has dropped in its recent 5 years (2015 to 2019) to an average of 11.73% per year from the 5-year period (2010 to 2014) of an average of 16.34% per year. This is because, for most parts of its last 5 years, earnings were maintained at S$ 50 million per year and did not grow. But, its shareholders’ equity did, which led to a drop in Return on Equity from 2015 to 2019.

• Cash Flow Management
  From 2010 to 2019, The Hour Glass Ltd had brought in S$ 411.0 million in cash flows from operations. Out of which, the management spent S$ 90.4 million in net capital expenditures and had paid out as much as S$ 124.6 million in dividends to reward its existing shareholders. The Hour Glass Ltd had kept a portion of its cash generated in its bank account. It had contributed to an increase in its cash reserves from S$ 50.5 million in 2010 to as high as S$ 181.0 million in 2019.
  
  
  
• Latest 12-Month Financial Results
  Over the last 12 months, The Hour Glass Ltd had generated as much as S$ 746.6 million in revenue. Out of which, it had earned S$ 77.6 million or 11.01 Singapore Cents in Earnings Per Share (EPS), hence, continued on its improved financial performance recorded for financial year 2019.
  
  
  

Period	Group Revenue(S$ ‘000)	Shareholders’ Earnings(S$ ‘000)	Earnings per Share (EPS) (SG Cents)
Q3 2019	188,863	18,333	2.60
Q4 2019	176,653	24,324	3.45
Q1 2020	187,469	17,072	2.42
Q2 2020	193,609	17,905	2.54
Latest 12 Months	746,594	77,634	11.01

Source: Quarterly Reports of The Hour Glass Ltd

• Balance Sheet Strength
  In Q2 2020, The Hour Glass Ltd has no interest-bearing long-term debt and S$ 574.8 million in shareholders’ equity. In the period, it reported a total of S$ 469.1 million in current assets and a total of S$ 107.6 million in current liabilities. As such, it has a current ratio of 4.36 presently and it is able to meet all of its short-term liabilities.
  
  
  
• Major Shareholders
  Dr. Henry Tay Yun Chwan is the main shareholder of The Hour Glass Ltd. He has 12.75% direct shareholdings and 53.64% indirect shareholdings held in TYC Investments Pte Ltd, AMSTAY Pte Ltd, and AMS Lifestyle Pte Ltd. Dr. Henry Tay who founded The Hour Glass Ltd is appointed as its Executive Chairman. His brother-in-law, Dr. Kenny Chan and his son, Michael Tay are Group Managing Directors of The Hour Glass Ltd.
  
  Fidelity Puritan Trust is a substantial shareholder of The Hour Glass Ltd with 5.46% direct shareholdings of the company.
  
  
  
• P/E Ratio
  As of 10 December 2019, stock price of The Hour Glass Ltd is trading at S$ 0.81 per share. For the last 12 months, it generated 11.01 Singapore Cents. Hence, its current P/E Ratio works out to be 7.36, which is below its 10-Year P/E Ratio Average of 7.75 presently.
  
  
  

• P/B Ratio
  In Q2 2020, The Hour Glass Ltd has net assets of S$ 0.82 a share. Based on its current stock price of S$ 0.81, its current P/B Ratio is 0.99, which is below its 10-Year P/B Ratio Average of 1.05.
  
  
  

• Dividend Yields
  In 2019, The Hour Glass Ltd paid out 3.00 Singapore Cents in dividends per share (DPS). It has maintained a consistent dividend payout ratio of 25-30% from its annual earnings for the last 10 years. Based on its price of S$ 0.81 a share, the current dividend yield of the company would be 3.70% per annum, slightly above its 10-Year Average of 3.63% per year.
  
  
  

Source: Annual Reports of The Hour Glass Ltd

VIA’s Verdict 

Let’s assess The Hour Glass Ltd based on four criteria: 

Growth:
There is little discussed on the company’s plans to grow and expand in the near future. From its past results, The Hour Glass Ltd had recorded a small decline in sales and profits, which demonstrated some form of resilience in the midst of a slowdown in demand for luxury watches in 2016-2018. 

Balance Sheet:  

The Hour Glass Ltd had maintained a solid balance sheet where debt levels had been kept low with rising cash flows. It is evident based on Q2 2020 report that The Hour Glass Ltd is able to meet its short-term liabilities easily with a current ratio of 4.36. This is even more evident from the retailer’s balance sheet where it has reported to have S$ 159.1 million in cash and S$ 107.6 million in current liabilities. 

Valuation: 

It is trading below its 10-Year Averages in terms of P/E and P/B Ratio. 

Dividend Yield: 

It offers 3.70% per annum in current dividend yields, above its 10-Year average. From its financial records, The Hour Glass Ltd has a track record of being highly profitable (despite a dip in 2016-2018) and has solid cash flow management. As such, it had paid out stable dividends per share (DPS) to its shareholders for the last 10 years. 

So, is an investment into The Hour Glass Ltd at S$ 0.81 per share for you? 

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