The Hour Glass

[weijian]

The last bolt-on acquisition THG did was back in 2019 when it bought out a family own boutique in NZ for 35mil.

There is not much information wrt to this Aus acquisition and THG is paying ~8x earnings, which is just slightly cheaper than buying back its own shares. Nonetheless, the reduction in NTA post acquisition suggest that there is substantial intangibles been recognized on the BS, meaning most of the retail pieces are not transferred over.

PROPOSED ACQUISITION OF SPV IN AUSTRALIA

The Acquisition is in line with the Group’s strategy to continue expanding its presence in Australia and strengthen the Group’s retail footprint. The Acquisition is expected to provide both an enlarged client base and operating synergies to THGA’s business.

The consideration for the Acquisition is A$90.0 million (approximately S$75.6 million) (the “Purchase Consideration”). Under the SPA, the vendors will undertake a restructuring pursuant to which certain dealership rights, leases in prime locations and inventories will be transferred to SPV (the “Business”). The Purchase Consideration was arrived at on a willing-buyer and willing-seller basis, taking into account the earnings potential and assets of the Business.

https://links.sgx.com/FileOpen/Acquisiti...eID=839196

We finally have understanding of this 75mil sgd acquisition of an Aus SPV from AR25. THG has bought all the Rolex retail ops from Kennedy Watches and Jewellery. Post acquisition, THG is probably the biggest individual Rolex retailer in Aus and I suppose the Tays are wise enough to have gotten Rolex's blessings before they went ahead with the purchase.

Besides 4 new Rolex standalone boutiques, THG OPMIs should also be excited about the first (of the many) standalone Patek Philippe boutique that opened in Ginza in Oct last year (as per VB dydx). Dr Henry Tay has pointed out that the luxury watch market is currently in a dual track system - most desirable brands are growing and the rest are shrinking at the same time. THG is premium-izing and on the correct track. More CAPEX, higher inventory turnover days and less dividends, I am definitely ok.

CHAIRMAN’S STATEMENT

Over the past two and a half years, we have executed a series of initiatives to realign our retail network and deepen our market presence. A pivotal move was the transformation of The Hour Glass Japan’s multi-brand boutique in Ginza into a standalone Patek Philippe boutique, a testament to our commitment to elevating the overall retail experience for our clients. This project marks the first of several planned upgrades to the Group’s Patek Philippe network over the next 12 months, each designed to enhance brand visibility and client engagement.

Concurrently, the AUD90 million acquisition of four Rolex boutiques from an Australian counterpart—two in Sydney, one in Melbourne and one in Perth— completed our geographic expansion into all the biggest cities in Australia and New Zealand. This acquisition expands our footprint in Oceania from 3 boutiques in 2019 to 15 boutiques across 6 cities by the end of FY2026. We remain believers in the future potential of this region and have positioned have positioned The Hour Glass to maintain its leadership in this market.

THG AR25: https://links.sgx.com/1.0.0/corporate-an...d585c6cfd4

Kennedy family sells off Rolex dealership to Singapore: https://www.afr.com/companies/retail/ken...625-p5ma97

[weijian]

While David Webb is rooting for his HK watch retail holdings, most VBs will be hoping US citizens come Singapore to make their timeless timepiece instead.

Trump's tariff own-goal

There are some other interesting effects for larger ticket purchases. It will become more attractive for US citizens to visit other countries (particularly those with zero or low sales taxes) and buy anything that they can carry/wear home, claiming that they left the USA with it and it isn't an import. So HK tourism should benefit from US tourists looking for their next iPhone or sneakers, as should British Columbia in Canada. Similarly, if you are in the market for a Swiss watch, a trip to Switzerland or (again) HK beckons!

https://webb-site.com/articles/trumptariff.asp

4 months down the road, David Webb's view has actually materialized. From THG/Cortina's GPM of ~30%, a 39% tariff will add anything between 25-30% to the MSRP if the tariffs are fully passed onto customers. For the marquee brands, they will have to revisit the MSRPs that they set for their retail partners - both in US and rest of the world I suppose.

Unlike chocolate and pharma, makers will not relocate an inch of production overseas. The US is the biggest export market for Swiss watches at ~16% and MSRPs have always been strictly enforced on the ADs, at least by the Big3. Big geographical mis-pricings due to sudden FX changes are generally "quickly fixed" by brand owners.

It will be interesting to see what happens next if the 39% tariffs stay around. In the meanwhile, AP retailers will surely benefit.

How Switzerland’s tariff drama swung from hope to despair


Two different narratives of the call have emerged. One portrays Keller-Sutter lecturing Trump and botching the encounter. The other suggests it was all show and Trump had made up his mind to hit Switzerland before picking up the phone.

The truth might lie in the middle. Unlike some other leaders, Keller-Sutter is not one to opt for pomp and flattery, like NATO Secretary-General Mark Rutte has done to woo the US leader.

“We will not make promises we cannot keep,” Keller-Sutter told reporters when asked if she should have followed such a negotiating style.

But Trump also may have wanted to make an example of Switzerland after facing criticism for caving in on tariffs, especially against big countries like China.

Swiss companies initiated emergency plans to relocate production elsewhere to avoid the levies or pause deliveries to the US.

While the Swiss government is keeping a delegation in Washington to pursue concessions, the steadfast faith on the country’s exceptionalism is now broken.

“In negotiations, such breaks can happen,” Keller-Sutter told reporters. “One has to live with that and carry on.”

https://finance.yahoo.com/news/switzerla...00020.html

[weijian]

THG's MOM is out and is a fascinating read. Due to some issues, I did not attend the AGM and my absence now makes me feel like a fool. I will have to correct that in the many years to come.

I also have to admit that I doubled my THG exposure before FY25 results in anticipation of the final dividend. So one could imagine how disappointed I was when the final dividend was cut. But since then, it all made sense. Michael Tay (coincidentally also in charge of IR but doesn't want to do it) also seems to be unapologetic about schooling all the capital efficient investors (me inclusive as well).

MINUTES OF THE 46TH ANNUAL GENERAL MEETING

East Asia is a mature region, and we continue to remain long on this geography. My team and I will never bet against Hong Kong and China. There is a resilience and entrepreneurialism in those markets that we are unable to replicate in city states like Singapore.

In Hong Kong, we are consolidating our two Patek Philippe boutiques into one flagship boutique at Landmark in Central which is Hong Kong’s #1 shopping mall.

It was a rare acquisition opportunity which our Thai joint venture partner and I had been working to secure for more than 15years. The Thai business acquired is well managed and profitable, and we believe that we could add a lot of value to it.

There have been a lot of shifts in Brisbane, but we are delighted with the outcomes as this is the next city in Australia that the brands are investing behind. Shareholders can refer to the Chairman’s statement in our Annual Report 2022 for insights into THG’s long-term strategy for investing in properties in prime retail locations in Australia

We may use the property for our operations in the future. There are no more strata-titled office properties along Orchard Road, and that was what made this a gem when the 9th and 10th floors of Tong Building were marketed. This factor contributes to the purchase price premium for the property.

Our real estate acquisitions are not purely a game of “efficient” capital allocation but of “strategic long term” capital allocation. We think well beyond a single stock picker’s investment horizon and as such, will never appeal to investors who just crunch numbers. Depending on the market, try going into a successful mall or a densely packed high street to try and secure a lease at a reasonable value. Better yet first try yourselves to even get a meeting with the landlord.

I am the person responsible for investor relations at THG. It is a role which I have undertaken since I joined THG. Personally, I prefer to spend my time and the team’s time focused on driving the business.

https://links.sgx.com/FileOpen/Minutes%2...eID=857364

[Choon]

THG's MOM is out and is a fascinating read. Due to some issues, I did not attend the AGM and my absence now makes me feel like a fool. I will have to correct that in the many years to come.

I also have to admit that I doubled my THG exposure before FY25 results in anticipation of the final dividend. So one could imagine how disappointed I was when the final dividend was cut. But since then, it all made sense. Michael Tay (coincidentally also in charge of IR but doesn't want to do it) also seems to be unapologetic about schooling all the capital efficient investors (me inclusive as well).

MINUTES OF THE 46TH ANNUAL GENERAL MEETING

East Asia is a mature region, and we continue to remain long on this geography. My team and I will never bet against Hong Kong and China. There is a resilience and entrepreneurialism in those markets that we are unable to replicate in city states like Singapore.

In Hong Kong, we are consolidating our two Patek Philippe boutiques into one flagship boutique at Landmark in Central which is Hong Kong’s #1 shopping mall.

It was a rare acquisition opportunity which our Thai joint venture partner and I had been working to secure for more than 15years. The Thai business acquired is well managed and profitable, and we believe that we could add a lot of value to it.

There have been a lot of shifts in Brisbane, but we are delighted with the outcomes as this is the next city in Australia that the brands are investing behind. Shareholders can refer to the Chairman’s statement in our Annual Report 2022 for insights into THG’s long-term strategy for investing in properties in prime retail locations in Australia

We may use the property for our operations in the future. There are no more strata-titled office properties along Orchard Road, and that was what made this a gem when the 9th and 10th floors of Tong Building were marketed. This factor contributes to the purchase price premium for the property.

Our real estate acquisitions are not purely a game of “efficient” capital allocation but of “strategic long term” capital allocation. We think well beyond a single stock picker’s investment horizon and as such, will never appeal to investors who just crunch numbers. Depending on the market, try going into a successful mall or a densely packed high street to try and secure a lease at a reasonable value. Better yet first try yourselves to even get a meeting with the landlord.

I am the person responsible for investor relations at THG. It is a role which I have undertaken since I joined THG. Personally, I prefer to spend my time and the team’s time focused on driving the business.

https://links.sgx.com/FileOpen/Minutes%2...eID=857364

The minutes were much more informative and elaborative than the Q&A spoken at the AGM. It appears that thought was given post-AGM to answer the questions in a more helpful and informative way (a plus point to the THG team).