Is It Time To Bet On Cortina Holdings Ltd?

Cortina Holdings Ltd (SGX: C41) is one of the leading luxury watches retailing and distribution groups listed in Singapore. Presently, Cortina represents key brands such as Rolex, TAG Heuer, and Patek Philippe in over 20 retail outlets situated in Singapore, Malaysia, Indonesia, Thailand, Hong Kong, and Taiwan. As I write, its market capitalisation is valued at S$ 245.1 million on 12 December 2019. In this article, I’ll share 8 key things to know about Cortina before you invest.

• Revenues:
  Cortina has derived half of its revenue from its local retail outlets based in Singapore, thus, is its major income contributor. It was impacted by a drop in demand in 2015 and 2016, which caused a decline in sales from Singapore in the two years after multi-years of sales growth. Starting in 2017, Cortina’s sales in Singapore has picked up and recovered to levels attained in 2014 for the two years in 2018 and 2019.
  
  
  

Its ASEAN markets namely, Malaysia, Thailand and Indonesia have been a growth driver to Cortina. Revenues from these markets increased at a CAGR of 5.09% for the past 10 years, rising from S$ 74.1 million in 2010 to S$ 177.1 million in 2019.

Its retail businesses in Hong Kong and Taiwan had contributed about S$ 50 – 60 million per annum in sales to Cortina for the last 10 years.

In terms of revenue for financial year 2019, the proportion of sales that comes from Singapore, ASEAN, Hong Kong and Taiwan and other are as follows: 47.5%, 38.4%, 13.4%, and 0.7% respectively. 

Overall, Cortina has achieved a CAGR of 5.78% in group revenue for the past 10 years, rising from S$ 278.0 million in 2010 to S$ 460.8 million in 2019.

• Profitability
  The impact of falling demand of luxury watches on Cortina’s earnings in 2015 and 2016 was greater. This is evident with its earnings declined by more than 50% from S$ 18.4 million in 2014 to S$ 8.4 million in 2016. It then had turned itself around with three consecutive improvements for its earnings figures in 2017-2019. Cortina had delivered S$ 29.0 million in earnings in 2019, thanks to a recovery in demand for luxury watches for the last three years.
  
  
  

• Cash Flow Management
  From 2010 to 2019, Cortina has generated S$ 219.3 million in operating cash flows. Out of which, it has spent on the following:
  
  – S$ 19.5 million in net capital expenditures (CAPEX).
  – S$ 75.7 million in net repayment of borrowings.
  – S$ 45.5 million in dividend payments to its existing shareholders.
  
  Overall, Cortina had lifted its cash reserves from S$ 10.2 million in 2010 to S$ 81.3 million in 2019. This indicates that Cortina has been efficient in generating operating cash flows for the last 10 years.
  
  
  
• Balance Sheet Strength
  On 31 March 2019, Cortina has reported to have S$ 81.3 million in cash and cash equivalents and S$ 24.0 million in total borrowings, both non- current and current borrowings. Hence, Cortina is in a net cash position of S$ 57.3 million and thus, has no debt-to-adjusted capital ratio. It has S$ 256.0 million in current assets & S$ 73.8 million in current liabilities. Thus, its current ratio is 3.47.
  
  
  
• Major Shareholders
  As of 12 June 2019, Cortina’s major shareholders are listed as follows:
  
  
  

No.	Major Shareholders	Direct Shareholdings (%)
1	Lim Keen Ban Holdings Pte Ltd	31.80%
2	Henry Tay Yun Chwan	12.69%
3	Ming Yaw Pte Ltd	10.52%
4	Yu Chuen Tek	5.34%
5	Rennick Pte Ltd	4.41%

Anthony Lim Keen Ban is one of the co-founders of Cortina and is a key shareholder via his interest in Lim Keen Ban Holdings Pte Ltd and Ming Yaw Pte Ltd. He is the Chairman and CEO of Cortina. His sons, Raymond Lim Jit Ming and Jeremy Lim Jit Yaw are appointed as Cortina’s Deputy Chairman and Deputy CEO and Executive Director of the company.

Victor Yu Chuen Tek is a key shareholder of Cortina with his own direct shareholdings of 5.34% and his indirect interest held in Rennick Pte Ltd. He is an Executive Director of the company.

Henry Tay Yun Chwan is a key shareholder of Cortina with 12.69% stake in the company. Henry is the Executive Chairman of The Hour Glass Ltd, another leading luxury watch retailing group listed in Singapore.

• P/E Ratio
  In 2019, Cortina has made 17.5 cents in earnings per share (EPS). Thus, at its current stock price of S$ 1.48 a share, its current P/E Ratio is 8.46. It is meaningless to compare it with its past average for this method is best used only for stocks that delivered consistent increase in profits in the last 10 years.
  
  
  
• P/B Ratio
  In 2019, Cortina has net assets of S$ 1.20 a share. Thus, its current P/B Ratio is 1.23, which is higher than its 10-Year P/B average of 0.821.
  
  
  
• Dividend Yields
  Inclusive of special dividends per share (DPS) of 2.50 cents, Cortina has paid out 4.50 cents in DPS for 2019. Thus, it is paying 3.04% in dividend yields per annum currently. 

VIA’s Verdict: 

The question is: ‘Which of the two luxury watch retailers offer investors a much better value for money? Is it Cortina or The Hour Glass Ltd? 

Here, let me answer by comparing the two in terms of its earnings delivery and its valuation ratios: 

Financial Results: 

Both companies have experienced declining revenues and earnings for a period of 3 years where Cortina’s period was in 2014-2016 and the Hour Glass’s period was in 2015-2018. During these periods, I discovered that Cortina’s profitability was more badly affected with greater falls in earnings as compared to the Hour Glass where its earnings had only dipped marginally. 

Thus, in terms of resilience, the Hour Glass held up better than Cortina. 

Valuation Ratio: 

Stocks	Cortina Holdings Ltd	The Hour Glass Ltd
Current Stock Price	S$ 1.48	S$ 0.81
P/E Ratio	8.46	7.36
P/B Ratio	1.23	0.99
Dividend Yields	3.04%	3.70%

Based on its latest stock price, The Hour Glass Ltd has lower P/E Ratio, P/B Ratio and it pays out better dividend yields as compared to Cortina. 

So, which of the two would you opt for: Cortina or The Hour Glass? 

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