Riding the economic growth cycle.

Where are we now?

Since the pandemic happened in 2020, the global economy had undergone a fast and furious contraction. However, central banks had been fast to react by pushing both fiscal and monetary policies to ensure that the economic structure was not affected. But with infections getting out of controlled globally, many countries went into a lockdown subsequently in the second and third quarters of 2020.

Even though, the current situation is much better controlled with the introduction of vaccines and various safe distancing measures, it remains unpredictable. The government of Singapore instituted a return to phase 2 (heightened alert) in May 2021 with the number of unrelated cases in the community rising.

Singapore economy expanded 1.3% in the first quarter of 2021, beating official estimates of just 0.2%. On a quarter to quarter basis, Singapore economy grew 3.1% which is faster than the government’s estimates of 2% as well.

Even with the return to phase two, the Ministry of Trade and Industry maintained its GDP growth forecast for 2021 at 4% to 6% but review of this target is expected to happen in August.

With that, I believed that Singapore is still in the early stage of recovery. The government has done a good job in containing the recent hike in community cases. With our economy tied very closely to international trades, Singapore will be a beneficiary once countries start to open up globally.

Consumer Discretionary – tied to domestic economic growth story

Overall, if investors continue to rotate out of 2020’s top growth stocks, the consumer discretionary industry could be in focus. Consumer discretionary stocks that could ride the current reopening tailwinds includes The Hour Glass (AGS) and Cortina (C41).

Cortina Holdings Limited is an investment holding company that retails and distributes timepieces and accessories in Singapore, Malaysia, Thailand, Indonesia, Hong Kong, Taiwan, and Russia. The company operates through Wholesale, Retail, and Others segments. The Wholesale segment engages in the wholesale of timepieces and luxury branded accessories. The Retail segment is involved in the retail of timepieces, branded pens, and accessories. The Others segment provides other support services. The company was founded in 1972 and is headquartered in Singapore.

The Hour Glass Limited is an investment holding company that retails and distributes watches, jewelry, and other luxury products in South East Asia, Australia, and North East Asia. It also invests in properties. The company operates 45 boutiques. The Hour Glass Limited was founded in 1979 and is based in Singapore.

Comparison between The HourGlass and Cortina

From market cap perspective, The Hourglass is around twice the size of cortina. But on a personal note, i don’t see that as a disadvantage for Cortina as the smaller in size may also mean agility in a highly competitive market. This is evident in Cortina’s ability to grow EPS at a rate of 14,45% in the last 6 years, as compared to The HourGlass’s EPS growth of 7.15% in the same period.

With Cortina’s ability to grow its EPS at a higher rate, we see that it is therefore, trading at a higher PE of 13x versus The HourGlass of 10.8x.

In terms of price to sales ratio, Hourglass does have a slight advantage and it is also enjoying a better profit margin of 11.1% compared to Cortina’s 8.10%.

Both of the companies are financially sound with operating cashflow covering 165.9% of debt for Hourglass and 541.6% of debt for Cortina.

Hourglass’s EBIT is 40.7x interest repayments and Cortina’s 44.8x which is extremely healthy.

I have arrived at an intrinsic value of $1.38 and $3.20 for Hourglass and Cortina respectively using the DCF method. Below are the parameters for the calculation:

Discount rate: 10% (listed company)

Growth rate: Historical EPS growth rate for the past 6 years respectively.

Number of years this growth is expected: 5 Years (conservatively)

Terminal growth rates: 5% (conservatively, considering how the prices of luxury goods increase over time) over a period of 10 years

Based on 4th of June 2021 closing price

Note: Cortina is very illiquid and therefore, the bid and offer spread is very wide. Investors will need to exercise caution.

Which is a better buy?

Personally, I would prefer HourGlass over Cortina due to its liquidity in the market though potential upside for Cortina is higher.

HourGlass has been growing its dividend payout recently as well which puts the dividend yield at 6.35% based on the price of $1.24.

HourGlass has a good relationship with its suppliers historically and this has given them an edge in terms of stock allocations by the highly sought-after international brands like Patek Philippe. Consumers literally wait 2 years for highly acclaimed models like the Nautilus and Aquanaut and no guarantee of securing a piece. These watches are trading above list price on the grey market.

The company invest in properties and operates its retail segment through some of these properties. This allows them to control costing and enjoy capital gain from appreciating property prices as well.

Ownership BreakdownThe HourGlass (AGS)Cortina (C41)
General Public19.50%13.50%
Private Companies53.60%42.80%
Individual Insiders16.30%43.70%

With a larger market cap, the Hourglass is able to generate interest from institutional investors too.


At the time of this writing, Alan Yeo does not own shares in The HourGlass and Cortina. This report is written for informational purpose and should not be taken as an advice to purchase securities in the companies mentioned. The public is advised to exercise caution in the buying and selling of securities as there is a possibility of total loss in these investment.