The Hour Glass Limited: A 21% Decline in Net Profit – Should Investors Stay or Exit?

Business Description

The Hour Glass Limited is a retail and distribution company specializing in watches, jewellery, and other luxury products. Its operations span across South East Asia & Oceania and North East Asia. The company also invests in properties and holds investments in associates and subsidiaries. The company’s immediate and ultimate holding company is TYC Investment Pte Ltd, and it is listed on the Singapore Exchange Securities Trading Limited (SGX-ST).

Industry Position and Market Share

The Hour Glass Limited operates within the global luxury industry, specifically focusing on the specialty watch sector. The industry is currently facing macroeconomic uncertainties and shifting geopolitical landscapes, which have dampened consumer sentiment. As a key player in this sector, the company competes with other luxury watch retailers and jewellers.

Revenue Streams and Customer Base

The company’s revenue streams are primarily derived from the sale of luxury watches and jewellery. Additional income is generated through rental income, management fees from associates, and interest income from cash and bank balances. The customer base consists of high-net-worth individuals and luxury aficionados.

Financial Statement Analysis

Income Statement

For the half year ended 30 September 2024, The Hour Glass Limited reported a revenue of \$540.3 million, a 3% decrease from the previous year. Net profit declined by 21% to \$61.56 million, attributable to increased operating expenses and a lower share of results from associates. The company’s gross margin slightly decreased to 30.7% from 30.9% last year. Earnings per share fell by 19% to 9.46 cents.

Balance Sheet

As of 30 September 2024, the company reported total assets of \$1,152.2 million and total liabilities of \$259.9 million. Net assets attributable to owners were \$878.7 million, equating to a net asset value per share of \$1.36. The company maintained a strong cash position with cash and bank balances of \$207.0 million, despite a decrease from \$237.6 million as of 31 March 2024.

Cash Flow Statement

The net cash flows from operating activities stood at \$53.79 million. However, the company experienced a net outflow in investing and financing activities, resulting in a net decrease in cash and cash equivalents by \$32.04 million. The company also reduced its bank borrowings to \$71.3 million from \$83.9 million.

Dividend Information

The Board of Directors has approved an interim dividend of 2.00 cents per ordinary share for the half year ended 30 September 2024, amounting to approximately \$12.96 million. This dividend is consistent with the previous year’s interim dividend.

Key Findings

Strengths

• Strong market position within the luxury watch and jewellery sector.
• Consistent revenue streams from diversified sources.
• Robust cash position and reduction in bank borrowings.

Risks

• Decline in net profit by 21% and reduction in gross margin.
• Increased operating expenses, particularly in advertising, promotions, and depreciation.
• Macroeconomic uncertainties affecting consumer sentiment in the luxury sector.

Report Date and Financial Year

The financial report is dated 12 November 2024 and covers the half year ended 30 September 2024.

Special Activities

The company has been active in share buybacks, purchasing \$2.9 million of its own shares, and has distributed \$38.9 million as a final dividend for FY2024.

Investment Recommendations

For Current Shareholders

Given the company’s strong market position, consistent dividend payments, and robust cash position, it is recommended to hold the stock. The current macroeconomic challenges are temporary, and the company is expected to remain profitable.

For Potential Investors

Potential investors should consider the company’s strong fundamentals and market position but should be mindful of the current decline in net profit and increased expenses. It is recommended to wait for signs of recovery in net profit and improved economic conditions before investing.

Disclaimer

This analysis is based on the financial report for the half year ended 30 September 2024. It is essential to conduct further research and consider the current market conditions before making any investment decisions. The recommendations provided here are based on the data available in the financial report and should not be construed as financial advice.