An Investors’ Look Into Hour Glass and Cortina Holdings

When we think about luxury retailers, we think about designer handbags, watches and jewellery. In Singapore, there are limited choices for investors who wish to invest in this segment. In the local luxury watches industry, it is mainly dominated by two companies with a long and strong history, The Hour Glass (SGX: E5P) and Cortina Holdings (SGX: C41).

There are many similarities between the two companies. Both companies are mainly distributors of high-end timepieces around Southeast Asia. Although Hour Glass has expanded its outlets into Australia and China, Cortina has so far preferred to focus its attention on Southeast Asia, Hong Kong and Taiwan. Both companies are also majority owned by their founding families: Hour Glass is led by its Chairman and Vice Chairman, Dr. Henry Tay and Dato’ Dr. Jannie Chan respectively, while Cortina is led by the Lim family.

On the surface, it seems that Hour Glass is “better” than Cortina Holdings in a number of important ways: 1) Hour Glass is the larger of the two companies; 2) from their last completed financial years, Hour Glass’ net profit of 8.7% is almost twice that of Cortina’s at 4.6%; 3) Hour Glass has grown its profits at a compounded annual rate of 32.2% since 2009, unlike Cortina which ‘only’ grew at 24.6%.

However, there is a very important piece of information which might make us rethink about the fundamentals of Cortina Holdings. Dr. Tay, the Chairman of Hour Glass, has actually been one of the largest shareholders in Cortina Holdings since 2006 – Cortina must be doing something good when even its competitor wants to invest in it.

Source: Google Finance; Hour Glass (red) and Cortina Holdings (blue)

As it turns out, both companies have rewarded their shareholders greatly over the past 5 years, returning around 250% since 2009. However, profits at Hour Glass have been pressured lately due to the slowdown in the Chinese economy and an issue of oversupply in the industry. Cortina, on the other hand, had seen double-digit growth in both revenue and profits in its latest half-year results due to its expansion in South East Asia.

In any case, someone once told me that companies like Hour Glass and Cortina are not in the business of selling watches: They are in the business of selling an ego, and egos will always be in huge demand. I should know this point well; I just bought myself a new watch.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.