DBS Group Research is keeping its “hold” call on luxury watch retailer The Hour Glass with a lower target price of $2.12 from $2.54 previously.
This comes on the back of the group announcing is 1HFY2023 ended September results, which saw earnings increase 35% y-o-y to $85.5 million, while revenue was 18% up at $555.5 million. The group also declared an interim dividend of 2.0 cents per share.
See more: The Hour Glass reports 35% higher earnings to $85.5 mil for 1HFY2023
In a Nov 2 report, DBS research team said that the group’s 1HFY2023 earnings were more resilient than anticipated despite the ongoing macroeconomic uncertainties. Although margins have cooled off from its peak, 1HFY2023 gross and net margins remained firm at 32.4% and 15.2%.
“Given the resilient market, we have raised FY2023 earnings by 19%, backed by FY2023 revenue growth of 9%,” says DBS, who has forecased a net profit of $154 million and ebitda of $259 million for The Hour Glass.
While earnings are expected to remain firm, the research team is keeping its “hold” call as it has pegged the group’s valuation to a lower forward P/E ratio of 9.0x, down from 13.5 previously, in lieu of the uncertain macroeconomic outlook and rising recessionary fears.
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“Although The Hour Glass has witnessed firm earnings in 1HFY2023, we believe recessionary fears will continue to pose as headwinds to its valuations. Most luxury goods players have seen their share prices decline year-to-date and are now trading below their 4-year historical average P/E ratios, whilst the group trades at +1SD of its 4-year average,” says DBS.
Nonetheless, DBS views the group’s long-term outlook as “healthy”, as it is a key beneficiary to Asia’s growing number of hight net worth individuals (HNWI). Asia is estimated to see the fastest growth in the number of HNWIs with a four-year CAGR of 6.4% by 2025, according to Statista and Credit Suisse estimates. “We observe a positive correlation of 0.67 between the number of HNWIs in Asia and the group’s sales, and this bodes well for luxury goods players over the long term,” says DBS.
Shares in The Hour Glass closed at $2.06 on Nov 7.
