Jeremy Lim Jit Yaw, CEO of Cortina Watch, exudes a calm yet cheery demeanour, as he takes this interview with The Edge Singapore just before heading to Geneva for the Watches and Wonders 2022 trade show.
The show is one of the largest events on the horological industry’s calendar, where the biggest luxury watch brands will wow the world with their latest collections. This annual event will often be followed by a surge in buying activity as enthusiasts try and get their hands on one of the prized pieces. The already booming watch market is likely to heat up further with supply struggling to catch up.
Founded in 1972, Cortina Watch is the authorised dealer for over 40 of the most valuable luxury watch brands like Rolex, Patek Philippe and Franck Muller. It was listed in July 2002 on the Mainboard of the Singapore Exchange as Cortina Holdings. This year, the company celebrates its 50th anniversary after having achieved its best financial year ever in FY2021 ended March 2021, as existing and new customers snapped up ever more pieces at ever-higher prices.
“No, I don’t think it is because people are stuck not being able to travel and hence buying watches,” says Lim, referring to the buying behaviour of watch enthusiasts during the pandemic. “I think people are becoming more aware of watches as they use their free time to go online and read and research,” adds Lim, who wears another hat as an executive director of Cortina Holdings.
In a way, the surge in demand was due to the vibrant financial markets, says Lim. In defiance of the economic downturn triggered by the pandemic, markets, following an initial correction, rallied strongly instead. This created lot of new wealth, especially among existing well-off investors who are in a better position to exploit the market volatility. Along with the pent-up demand to revenge shop and own luxury goods, the entire watch industry has been propelled to new levels.
Meanwhile, although the production of watches has increased to meet soaring demand, the global output of watchmakers is at an alltime low because of pandemic-linked restrictions. Lim expects production levels to recover but in a nod to basic supply-demand economics, he does not believe that the luxury watch brands will increase the supply of their watches, at least not in the next five years.
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However, the way Lim sees it, a new issue has surfaced as eager buyers turned to the second-hand market to get their hands on coveted pieces. Aside from risks such as authenticity and poor condition of the watches, unmet demand has inflated the prices of several watch models to outrageous levels on the grey market. For example, a Rolex Oyster Perpetual 41 in Oystersteel and a turquoise dial that was launched last year and retailing at $8,390 now commands about $90,000–$100,000 in the second-hand market, thanks to its social media hype. With so much froth, there is a danger of a bubble waiting to burst.
For Lim, the primary objective of owning a watch is to enjoy wearing it. Owning one as an investment should be secondary. “I don’t think that it is fair for people to flip watches and profit from a product that has gone through a meticulous manufacturing process,” says Lim. He maintains that the boom in the grey market does not affect Cortina but he does not condone sellers who do not help protect the brand’s integrity.
Lim believes that Cortina, as a gatekeeper of the brands it carries, has a role to play in the second-hand market. “If we ever do this, our own second-hand channel will be properly backed by the brand’s service centre and backed by our reputation. This service would cater more to those who want to buy a watch that they cannot access. I’m not talking about profitability here, but instead providing consumers with a different level of service that will protect both the brands we represent and the consumers.”
Sincerely, yours
While Cortina debates its entrance into the second-hand market, it had on March 2021 expanded its portfolio of brands by completing a rare M&A deal in the local watch scene: Acquiring Sincere Watch for $84.7 million.
This acquisition has given Cortina access to Sincere’s range of brands that it distributes across 40 outlets while generating economies of scale and other forms of synergies that can increase Cortina’s value to both consumers and business partners.
More than a year on, Cortina has kept the Sincere brand and plans to keep it as such, given the latter’s distinct following and brand cachet. “Sincere has a different business strategy from Cortina. They have their own unique customer base and does not primarily focus on independent watch brands. To strengthen the overall business portfolio, the intention is to provide Sincere the necessary resources to flourish,” says Lim.
At the time of the acquisition, Sincere was a loss-making company. Cortina aims to turn Sincere around by the FY2022 ended March 2022, which financial has yet to be announced.
While Cortina has added a bunch of new brands into its portfolio with Sincere’s acquisition, it is looking into some new markets to break into. Although there are no confirmed plans at the moment, Lim shares that the company was looking at venturing into the Vietnam market before the pandemic hit.
And of course, if Cortina is to take the big step and move into new markets, it would have to do its “homework”. For Lim, an expansion into a new market may be attractive but he is highly aware of the risks involved and will not enter into foreign lands without being certain and having good control over it.
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Time for growth
Lim, son of company founder Anthony Lim Keen Ban, was previously COO of Cortina Watch. He took on the CEO role last June. However, Lim jokes that he does not see this as a promotion as he did not enjoy a pay raise while still shouldering the responsibility of leading the company’s growth.
While he continues to oversee the business operations; which include retail outlets in Singapore, Malaysia, Thailand and Indonesia, Lim is also responsible for leading the overall business objectives and devising policies to bring them to reality.
In its latest 1HFY2022, Cortina reported earnings of $25.4 million, 74% higher than $14.6 million in the same period a year ago. This brings earnings per share (EPS) to 15.4 cents from 8.8 cents last year. In the same period, revenue was up 87% y-o-y to $324.6 million, mainly due to the easing of restrictions in Singapore and Thailand. Contribution from Sincere following the acquisition helped as well. Sales margin for the period also improved by 1.8 percentage points to 30.2%.
In a sense, reporting better numbers year after year is not unfamiliar to Cortina, which has recorded earnings growth for five straight fiscal years. For the most recent FY2021 ended March 2021, its revenue dropped by 15% over FY2020 to $436.7 million, as supply disruptions and the impact of the pandemic hurt sales. However, it was able to maintain earnings at $39.6 million, up 1% y-o-y, thanks to cost management, government grants and rent concessions.
As Cortina ride on the recovery wave from the pandemic, the biggest takeaway from these last couple of years is to pay more attention to the bottom line than its topline, says Lim.
“In the past, even before the pandemic, there was a lot of focus on topline competition. It will be critical to have a strong bottomline to stay profitable, otherwise one could end up not being able to pay for the fast rising cost in rentals, human resources and other investments,” explains Lim.
“I think our performance is strong and if you look at our financials closely, you will notice that our profitability has been growing over the years and that is important. That means that we are more cost-conscious, rather than revenue conscious,” says Lim, adding that this is the mindset that the company is adopting.
For every watch that the company sells, Lim elaborates that it has to “get back” the ideal return of investment (ROI) to cover costs.
Last year, Cortina also emerged as the winner for the companies in the F&B and retailers, as well as best returns to shareholders sectors of last year’s Centurion Club, an award by The Edge Singapore that recognises the growth efforts of locally listed companies. Cortina recorded a CAGR of 38.5% of its share price over three financial years.
For FY2021, the company paid a final dividend of 2 cents per share, and a special dividend of 4.5 cents, bringing total dividend for the year to 6.5 cents, which was the same as the amount distributed in FY2020.
Besides the dividends, Cortina has shown its ability to deliver returns to shareholders via the appreciation of its share price.
In the past five years, shares in Cortina have risen over 439.5% to close at $4.10 on April 12 or 552.1% growth if dividends were reinvested. This gives the company a market capitalisation of $678.9 million and a P/E of 13.45x. Shares in Cortina saw a significant jump in share price from October to November 2021, gaining more than 50% in just two months, and it seems that the stock is holding its price well.
Although the stock does not attract active coverage from analysts for now, that has not stopped Lim from feeling upbeat about Cortina’s prospects. “Combining our mindset of being conscious about ensuring profitability and the demand boom in the watch industry, our performance has been great,” says Lim, who hopes for the rest of FY2022 continues to tick over like clockwork.
Photo: Cortina Holdings
