Recently, I received the following email query on The Hour Glass Limited, one of the famous brands for luxury watches in Singapore. Hence, I decided to craft a post to capture some quick thoughts on this SGX-listed stock.
Chanced upon your blog while doing research on The Hour Glass Limited. Could I know whats your take on the management shuffle going on now? Quite a few board level executives are moving on.
To be frank, apart from the resignation of Ms Wong Mei Ling as the Managing Director of Singapore, I am not aware of any major management shuffle going on within The Hour Glass Limited.
I have previously written an investment analysis on The Hour Glass Limited. Check out the report here.
According to the SGX filing, Ms Wong was responsible for the business development and management of The Hour Glass’ Singapore Division and her departure was due to her pursuit of other interests. Prior to that, Ms Lim Jee Yah resigned as Managing Director of Luxury Enterprises in July 2016.
Ultimately, investors must note that The Hour Glass is a family-owned and family-run business. So the departure of Ms Wong and Ms Lim should not be major concerns as the company founders are still managing the business. Nonetheless, behind the successful story of The Hour Glass Limited, lies a bitter family feud between founders Dr Henry Tay and Jannie Chan.
Dr Tay and Jannie Chan were divorced in 2010 and were engaged in a high-profile legal dispute over money issues back in 2012. Apparently, Dr Tay obtained an injunction to prevent Ms Chan from signing cheques for a family company, TYC Investment. Dr Tay also asked the court to order his former wife to return more than $3 million to TYC Investment. The couple subsequently managed to settle the family feud out of court.
Last year, Jannie Chan got into deeper trouble when she lost her bankruptcy appeal against ANZ Bank which sought to recover $8.7 million in loan defaults by a Timor firm in which she was a director and shareholder. Amid that storm, Jannie relinquished her executive functions within The Hour Glass and retired as the Executive Vice-Chairman of The Hour Glass Limited.
However, Jannie Chan continues to remain on the Board as a Non-Independent and Non-Executive Director and serves in the capacity of Senior Advisor to The Hour Glass.
Business as usual
Notwithstanding the family feud, it was business as usual for The Hour Glass management, at least for the past five years. Since 2011, revenue grew from $517 million to $707 million. Profit before tax remains healthy, increasing steadily from $43 million in 2011 to $53 million in 2016. The Return on Equity (ROE) has been double digits for the past 5 years, but is declining gradually. The trend indicates that The Hour Glass Limited performance might have peaked.
On the basis of the latest financial result, The Hour Glass current challenge lies not in the management but rather the headwinds currently experienced by the luxury watch industry. Profit for 3Q declined 7% to $13.6 million year-on-year while total profit for the nine months dropped a whopping 14% to $30.5 million compared to previous year.
The terrible retail market sentiments certainly caused a dent in The Hour Glass’ profits but the management is not sitting idle.
Because of its reputable brand, The Hour Glass had managed to obtain extra lines of credit from their banks and launched a $500 million medium term note programme in 2016 to respond to any opportunity that may arise in the coming years. During this slow-down period, the company is also reviewing its policies and procedures to enhance operational efficiency.
I continue to like The Hour Glass for its strong balance sheet and healthy cash flow. Current assets were $441 million while total liabilities stood at merely $110.8 million. The Group continued to be cash rich with cash and cash equivalents at $95 million. Cash flow for nine months was $29 million.
At price book value ratio of 1.056, the current share price seems to reflect the intrinsic value of The Hour Glass. The Net Asset Value (NAV) was $0.65 while the Net Current Asset Value Per Share (NCAVPS) was $0.567. However, if investors factor in the hidden assets, which consists of the portfolio of investment properties measured at fair value of $66.9 million, the actual value of The Hour Glass should be $0.67.
Last year, The Hour Glass collected $2.6 million of rental income from its investment properties located in Singapore, Australia and Malaysia. With its free cash flow, it is likely that the management may acquire more properties and collect more rental income going forward. It will be interesting to see The Hour Glass transforming itself into a landlord indeed!
The Hour Glass has been established for close to 40 years and is a well-established brand in Singapore. The luxury watch company has won numerous awards for business and service excellence. A lot of credit must go to the management, especially the two founders, for creating such a strong Singapore brand.
To be frank, with Dr Henry Tay as the Chairman, the company is still in good hands. Even though there are some management movements in recent years, I don’t foresee that the boat will be rocked.
I am not vested in this counter but feel that $0.60 will be a good entry price for me to enter.
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