Hi! Welcome to a subscriber-only edition of Asian Century Stocks – a newsletter about Asian value stocks. For a complete list of all previous posts, check out the Table of Contents.
Disclaimer: Asian Century Stocks uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers, including whether any investment suits your specific needs. I hold a position in The Hour Glass at the time of publishing this article. To reiterate, this post and the presentation below are for informational and educational purposes only—not a recommendation to buy or sell shares.
The Hour Glass (HG SP — US$1.1 billion) is a Singapore-based luxury watch retailer focused on the sale of Rolex watches.
It currently has 72 stores across Singapore, Thailand, Australia, Vietnam, Malaysia, New Zealand, Japan and Hong Kong. You can think of it as a luxury watch retailer focused on Southeast Asia.
Rolex accounts for the vast majority of revenues and profits. But it also serves other luxury brands, including Patek Philippe, Audemars Piguet, and Omega.
The company was started by Henry Tay and his then-wife Jannie Chan. His family had been distributing Rolex watches since 1948. During his university years in Melbourne, Henry met Jannie Chan, and they decided to go into the wristwatch business together. They were inspired by specialist watch shops in Melbourne. And upon returning to Singapore, they decided to open a specialist luxury watch retailer called "The Hour Glass".
The following decade, The Hour Glass quickly expanded across the region, adding shops in Kuala Lumpur, Australia and Bangkok. The Asian Financial Crisis was tough on the local watch industry, compounded by poor investments in watch brands Daniel Roth and Gerald Genta, both of which ultimately failed.
The 2002 appointment of Kenny Chan as Chief Operating Officer was a turning point for the company, and it went on to grow for the following two decades:
However, behind the scenes, tensions flared up. In 2010, Henry and Jannie divorced. And what followed was a decade-long court battle. The two of them were equal owners of the parent company, TYC Investment. Since Jannie was unable to sell or liquidate her share of the business, she eventually had to file for bankruptcy.
Henry remains Executive Chairman and is certainly impressive. In the annual report, he is forthright about the problems facing the company and the need to act countercyclically when it comes to share buybacks.
At the same time, I was a bit taken aback by Henry referring to the book value of equity as the company's "corporate net worth". Significant investments in retail properties at sub-5% cap rates also make me wonder how quickly capital will compound in the longer term.
The business itself is doing well. The Hour Glass is among the most reputable Rolex retailers globally, perhaps a close second to London-based Watches in Switzerland. The Hour Glass is known within the industry for getting excellent allocations of the most sought-after Rolex watches.
){kind=link}