05 August 2014

The Hour Glass Quarterly Report Summary - August 2014



EPS: 3.56 cents, NTA: 1.59. Annualized EPS / NTA = around 9%. Based on last two financial year trend, 1st quarter normally is the lowest quarter among the total year. I believe that the company would generate more free cash flow later as the inventory level is up compared to last quarter.

From previous quarterly report, I knew that the company also intend to grow non-watch luxury business by hiring Ms. Lim Jee Yah to spearhead Luxury Enterprises - a business group that to scale the Group's Laduree franchise in Southeast Asia region. We may have a better idea on the result a few quarters later.

6. In an effort to develop a new pillar to complement its specialty luxury watch business, the Group recently appointed industry veteran Ms Lim Jee Yah to spearhead Luxury Enterprises - A business group focusing on non-watch, luxury related businesses. On the cards are plans to scale the Group‟s Laduree franchise. The Group holds the franchise of the renowned Parisian patisserie for Southeast Asia.

The group has a proven profit record even during financial crisis. It means that this is a good company with certain competitive edges against the peers and remain resilient during the economic turmoil. With latest 6 cents dividend declared, the dividend yield is around 3.33% with I believe is sustainable as it is only around 20% - 30% of total earnings last year.

The key risks here are low trading volume, intensified competition that reduce the profit margin, as well as the working capital requirement & capex budget to grow the business.


Company Business Review

Revenue for the quarter ended 30 June 2014 (“1Q FY2015”) was $157.0 million compared to $154.7 million achieved in the same period last year (“1Q FY2014”). Gross margin was lower at 20.7% (1Q FY2014: 21.6%) due to a more competitive retail environment. Operating expenses were higher resulting from rental and depreciation expenses. Profit after tax was comparable at $9.1 million. As at 30 June 2014, group inventory was $293.8 million. Cash and cash equivalents were $84.3 million. Consolidated net assets were $374.2 million or $1.59 per share.

Company Comment on Outlook

The global economic and political uncertainty is expected to continue and affect consumer sentiment and the demand for watches and luxury goods. Barring any unforeseen circumstances, the Group expects to remain profitable for the financial year.

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