The Hour Glass – Cheap Singaporian Retailer
|April 1, 2016||Posted by Oddmund Grøtte under Stock Analysis|
Share price today: 73 cents
Established in 1979, The Hour Glass (THG) is one of Asia’s reputable luxury retail groups with 32 boutiques in nine key cities throughout the Asia-Pacific Region. The Hour Glass prides itself as world’s leading cultural retail enterprise. They have been recognised by notable international publications such as Monocle and Vanity Fair as one of the most influential specialty retailers in the world. Operations are in Singapore, Hong Kong, China, Malaysia, Japan and Thailand. About 20% of sales come from China. THG is official retailer for a collection of luxury watches such as Audemars Piguet, Cartier, Hublot, IWC, Patek Philippe, Richard Mille, Rolex, Sinn, TAG Heuer and the likes. They are selling authentic luxury, craftsmanship and exclusivity.
It is listed in Singapore with the ticker AGS (on Yahoo! AGS.SI). It’s also on the OTC-list as HRGSF but highly illiquid.
Results are based on the latest interim report. THG ends accounting year in March.
|Revenue SGD Mil||7.55|
|Gross Margin %||3.51|
|Operating Income SGD Mil||17.46|
|Operating Margin %||9.04|
|Net Income SGD Mil||16.13|
|Earnings Per Share SGD||14.87|
|Operating Cash Flow SGD Mil||24.91488|
|Cap Spending SGD Mil||13.34616|
|Free Cash Flow SGD Mil||31.53253|
The table indicates a very nice growth rate for all parameters over the last 10 years. Both gross and operating margins have increased gradually. About 5% of turnover ends up as free cashflow:
70% of operating cashflow ends up as free cashflow (30% is capex).
Results is pretty consistent to be such a “small” company:
ROIC last 10 years is 13%, a very good number, indicating a well-managed company.
Balance sheet analysis:
As most Asian companies the balance sheet is very conservative:
Management has indicated they want to keep it this way.
THG has only 25 million SGD in long-term debt, 4% of the balance sheet. Short term debt is also low at 8%. Current ratio is very high at 4.05. Such a high rate might indicate inefficient use of capital but this is luxury capital which requires high inventory. Inventory is 55% of assets, but has shown a declining % over the last 10 years.
PB is 1.26 at current prices. There is no goodwill in balance sheet and just 5 million of intangible assets. Since March 2006 book value per share has increased from 20 to 60 cents, a very good performance.
There is no excess cash the way I calculate it. Still, cash is 19% of all assets. Most likely there is some “hidden” value in land and property as this is valued at cost minus depreciation. However, this is not more than 10-20 million or about 10% of the market cap.
To my knowledge THG has no formal dividend policy. Last payment was 2.2 cents.
Payout ratio is conservative at around 50% of net profits (and free cashflow):
This leaves plenty of room for growing the dividend in the future.
Dividend is paid out twice a year, an interim dividend and a final dividend. They have at least paid dividends every year since 2005. Last 4 years’ payments gives a yield of 2.7% at todays prices.
Share price as of today: 73 SGD cents
At current price PE is 9. That might indicate a very cheap stock, at least compared to Western markets, but historically the stock is just slightly below average. However, the downside seems to be limited.
Recession in the global economy, especially in China. As with Swatch change of perceptions might influence, but to a much lesser extent than to Swatch. High inventory might be a drag if slowdown.
I own shares in AGS.SI.
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