DBS Group Research has initiated “buy” on The Hour Glass with a target price of $2.62, which offers a potential upside of 30%.
The Hour Glass, which opened its doors in 1979, is mainly in the business of the sales and distribution of luxury and speciality watches. Today, it is one of the region’s leading speciality luxury watch retailers, with 53 retail boutiques in Singapore, Malaysia, Thailand, Vietnam, Hong Kong, Japan, Australia, and New Zealand.
In his March 15 report, analyst Paul Yong says he anticipates the luxury watch retailer to report record earnings in the FY2022 ending March 31.
According to the analyst, the record earnings are likely to be driven by the V-shaped recovery in the luxury goods industry in 2021.
In the 1HFY2022 ended September, the group saw record earnings with revenue and net profit rising 63% and 110% y-o-y respectively.
“We believe this is supported by the bullish stock market in 2021, which drove consumer sentiment, and the shift in domestic spending from travel towards luxury goods. We anticipate this trend to continue in 2HFY2022 on the back of seasonal demand and as consumption on luxury goods stays firm,” writes Yong.
“Over the longer term, we estimate the group to add six retail boutiques, which should drive a firm earnings growth of 12% by FY2025,” he adds.
That said, Yong sees a potential moderation of sales in the FY2023 due to the volatile stock market, though the “frontloading of spending ahead of GST hikes could lend some support”, he says.
That said, the longer-term industry uptrend looks to remain intact, thanks to the growing number of wealthy individuals in Asia.
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“We observe a positive correlation of 0.67 between the number of high-net-worth individuals (HNWIs) in Asia and the group’s sales; that Asia’s wealthy are growing should bode well for the luxury goods players, including Hour Glass,” says Yong.
Shares in The Hour Glass closed 5 cents higher or 2.5% up at $2.05 on March 15.
