DBS Group Research analyst Paul Yong has downgraded The Hour Glass from a “buy” to “hold” rating, with a lowered target price of $2.54 from $2.62.
Due to historical trends, Yong observes that The Hour Glass’s revenue typically witness moderations in growth during periods of economic uncertainties. “In our view, we are anticipating similar levels of moderation in revenue growth in FY2023,” the analyst writes.
“We believe ongoing recession and inflation fears could pose as headwinds to consumer sentiment,” he adds.
The Hour Glass reported earnings of $157 million for FY2022 ended March 31, up 86% y-o-y.
Moreover, net profit exceeded the analyst’s estimates by approximately 30%.
“For FY2023, we adjusted our gross and net margins estimates to around 30% and approximately 13.5% as compared to initial estimates of 29% and 12% respectively, albeit lower than FY2022’s margins, thereby raising our FY2023 earnings by 13%,” explains Yong.
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Earnings per share for FY2022 at 22.34 cents is 91% higher than the previous year's at 11.71 cents.
The Hour Glass’s y-o-y revenue reached $1.03 billion in FY2022, as trending consumer demand for mechanical watches has broadened over the past few years with an “accelerating momentum”.
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Though the analyst anticipates a moderation in FY2023, Yong also believes the longer term outlook remains healthy. This comes as Asia is estimated to see the fastest growth in the number of high net worth individuals (HNWIs) with a four-year CAGR of 6.4% by FY2025, according to Statista and Credit Suisse estimates.
“We observe a positive correlation of 0.67 between the number of high-net-worth individuals in Asia and the group’s sales; that the wealthy of Asia are growing should bode well for luxury goods players, over the long term,” says Yong.
As at 2.28pm, shares in The Hour Glass are trading at 2 cents up or 0.84% higher at $2.39 at a FY2023 P/B ratio of 2.2x and dividend yield of 3.4%.
