The Hour Glass

[weijian]

hi dreamybear,

In AR22, Chairman Dr Henry Tan had already talked about THG's capital allocation strategy in detail. Capital return to shareholders (via dividend or SBB) is actually the last priority.

In the same building, THG currently owns a unit (registered address) and also leases another level from the Tays/Lim as an IPT (probably a 2 year lease). So OPMIs will hope that the purchase may allow the IPT to eventually cease in the future.

[dydx]

THG is now a ‘rich man business’ moving towards the very rich man category, by increasingly focusing on the collector brands and watch collectors. This is a good niche positioning strategy!

[weijian]

THG is now a ‘rich man business’ moving towards the very rich man category, by increasingly focusing on the collector brands and watch collectors. This is a good niche positioning strategy!

hi dydx,

Please provide more context (eg. links, interviews etc) to your post, lest I will have to moderate it.

Moderator

[dydx]

THG is now a ‘rich man business’ moving towards the very rich man category, by increasingly focusing on the collector brands and watch collectors. This is a good niche positioning strategy!

hi dydx,

Please provide more context (eg. links, interviews etc) to your post, lest I will have to moderate it.

Moderator

If we take a careful look into THG’s portfolio of collector watch brands - including those vey niche and rare ones on exclusive representation basis, selling for very high prices - and the trophy, iconic retail properties supporting the group’s retail operations for the longer term, the conclusion is quite obvious for the discerning investors..

[dydx]

To put it in a different way, THG’s collector focused retail/distribution strategy has moved beyond - and ahead of - brands like Rolex and Patek. To appreciate it, we can take very good look into the group’s new revamped Ginza (Tokyo) store, and the coming IAMWATCH event…. https://www.linkedin.com/posts/the-hour-...member_ios

[pacyfiq]

In Bangkok yesterday, i was very impressed by the location of 2 new shops (coming soon) by The Hour Glass (Rolex and Tudor). Just next to the new Louis Vuitton Center. Can't beat this location near Erawan Shrine...a smart move in my humble opinion.

[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

[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

[wj1984]

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.

I think for this part is not that most of the retail pieces are not transferred over but for the watch business I believe some companies have a higher value for slow moving watches than what another company might value.

i.e. Hublot, MB&F etc.; 1 coy may value a BIG BANG on their books at 10k while another company might value it at 5k. This could be where the intangibles went..

of course for the big 3, AP, PP and Rolex it is much easier to value in the present market... RRP but then again the additional spend that a consumer must make to be eligible could also end up being intangibles on the BS via valuing the watches more than RRP... Again some companies pre-spend might be more than another...

[weijian]

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.

I think for this part is not that most of the retail pieces are not transferred over but for the watch business I believe some companies have a higher value for slow moving watches than what another company might value.

i.e. Hublot, MB&F etc.; 1 coy may value a BIG BANG on their books at 10k while another company might value it at 5k. This could be where the intangibles went..

of course for the big 3, AP, PP and Rolex it is much easier to value in the present market... RRP but then again the additional spend that a consumer must make to be eligible could also end up being intangibles on the BS via valuing the watches more than RRP... Again some companies pre-spend might be more than another...

hi wj1984,

Thanks for the reply (and always looking forward towards more timeless pieces of information from you, since I don't own any on my wrist).

Companies have to adhere to accounting principles and in general for inventories (in this case watches), it is valued at cost or net realizable value whichever is low. If net realizable value is determined to be lower than cost, the difference is recognized in COGS. But if the inventory is sold above cost, the difference is written back at COGS.

Therefore, I do not think any differences in mgt's estimates of the inventories is carried as intangibles. But then again, it is entirely possible that Mgt will be writing off some of the inventories post-acquisition, which is what had happened to Cortina when it acquired Sincere Watch in 2021.

The purchase price is 75mil sgd but the intangibles (difference between NTA before/after) is 841-768mil=73mil. I think I probably got the latter wrong. And so it would be wise to wait for FY26 results to see the actual accounting.