Story: Hour Glass distributes and retails watches, clocks and luxury timepieces. In over 28 years, it has grown from one store in Singapore to a retail and distribution network of over 21 stores in 6 cities. It retails over 60 international brands including Rolex, Patek Philip and Breguet.
Point: With a healthy set of 1H08 results and its seasonally strong Christmas season coming up, we expect strong earnings to continue. We forecast FY08 net profit to experience a 40% y-o-y growth to S$26m. Going forward, buoyant economies in Singapore, HK and China will fuel demand for luxury watches. In Singapore, government initiatives like the IRs and F1 race will increase tourist arrivals and should boost sales. Hour Glass Watch is expected to register steady y-o-y net profit growth of 9% into FY 09.
Relevance: Initiate coverage with a BUY recommendation and target price of S$2.32, based on 10x FY08 earnings. Our valuation is at a discount to its closest competitor, Sincere Watch, that trades at consensus 19x FY08 PER, given its smaller market capitalization and low share liquidity. Market interests in HG should increase following the announcement of a 1-for-1 stock split on 10 Dec 2007 following a report that Peace Mark, a HK listed fashion and luxury watch retailer is making a voluntary general offer for Sincere Watch at an attractive PE of 19x on FY08 earnings on 7 Dec.
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