Hour Glass

Hour Glass (THG): Stanchart issued an unrated report on THG, citing the achievements of industry-leading stock turn, growth, ROCE, EBIT margin improvement and positive free cash flow. THG also recently introduced the French luxury brand of macarons, Laduree, to Singapore, as well as the loss of a close competitor‘s brand distributorships due to its ownership transition, also opens doors for THG to gain market share. The luxury watch retailer believes it is No. 1 in SE Asia in terms of revenue and profit base. THG carries over 50 brands in 26 boutiques across Singapore, Malaysia, Australia, Thailand and Hong Kong. Stanchart has a negative view on its Singapore operations, THG's largest retail market, experiencing weak consumer sentiment, as well as increasing costs (rental cost +35% y/y for 1QFY14). On 1 Aug, Maybank-KE also issued an unrated report after a company visit. Key highlights were 1) rising costs, 2) weak consumer sentiments, as well as the potential entry of competitors in Singapore and 3) increasing challenges for the luxury sector in China. However, to mitigate the slowdown at home, THG's recently new Thailand operations have a positive take-up. THG trades near book value at 1.2x current P/B and 7.5x FY13A P/E with a dividend yield of 3%, based on historical dividend payout.