It’s About Time!
- Record FY22F earnings anticipated, due to strong consumer sentiment amid the 2021 bull market
- Frontloading of consumer spending ahead of GST hikes to support FY23F sales
- Healthy long-term industry outlook with four-year CAGR of 6%, driven by Asia’s growing wealthy
- Initiate coverage with BUY with TP of S$2.62, implying potential upside of 30%
Initiate with a BUY and TP of S$2.62, offering a potential upside of 30%. We anticipate record earnings in FY22F, driven by the V-shaped recovery in the luxury goods industry in 2021. Over the longer term, we estimate the Group to add six retail boutiques, which should drive a firm earnings growth of 12% by FY25F.
Record-level sales anticipated in FY22F. The Group witnessed record earnings in 1H22 (six mths ending 30 Sept 21), 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 2H22 on the back of seasonal demand and as consumption on luxury goods stays firm.
Key beneficiary of Asia’s growing wealthy. We anticipate a potential moderation in sales in FY23F due to the volatile stock market, though frontloading of spending ahead of GST hikes could lend some support. Despite short-term headwinds, the longer term industry uptrend remains intact, driven by Asia’s growing wealthy. 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 is growing should bode well for the luxury goods players, including Hour Glass.
Valuation:
Initiate with a BUY and TP of S$2.62, using a blended valuation methodology of a forward PE ratio of 14.5x (peak ratio) and DCF valuation (WACC 6.4%, terminal growth rate 1.5%).
Key Risks to Our View:
Prolonged weakness in economic conditions and sentiment.