Are Tougher Days Ahead for Singapore’s Watch Retailers?

Singapore’s business newswire The Business Times reported earlier today that Swiss watch exports to Singapore for the third-quarter of 2015 had fallen by 8.5% in real terms from a year ago.

The Federation of the Swiss Watch Industry, which had released the aforementioned data, had more bad news to share. Swiss watch exports to Singapore in the month of September had sunk by 14.6% year-on-year to just S$130.8 million. Meanwhile, Swiss watch exports to other countries like the U.A.E and South Korea had also fallen sharply.

Given all the above, will there be gloomy days ahead for Singapore-based luxury watch retailers Hour Glass Ltd (SGX: AGS) and Cortina Holdings Limited (SGX: C41)?

Michael Tay, the group managing director of The Hour Glass, was quoted by the Business Times as saying that falling demand for luxury watches in Singapore will last for “at least another two to three years.” Tay also foresees the watch industry in Singapore to follow what is already happening in Hong Kong – and that is, a consolidation within the industry as well as the closing of stores.

The Business Times also reported on Tay’s views that the slowdown in demand had been long overdue and should have happened after the Global Financial Crisis of 2007-09. The easing of monetary policy by central banks around the world had delayed the process, but it appears that the slowdown has finally arrived.

Some luxury watch retailers in Singapore had also pinned some of the blame for the slowdown onto the haze situation here caused by Indonesian forest fires; the haze, which is also choking parts of Malaysia and Indonesia, may have resulted in a dip in visits to Singapore by travelers.

Cortina currently trades at 10 times its trailing earnings with a dividend yield of 2.5%. Meanwhile, the selfsame numbers for the Hour Glass are just 8.6 and 2.9%, respectively. These valuation and yield figures do not seem excessive. But in the face of a potential decline in future earnings, can Cortina and Hour Glass’s low valuations offer investors enough protection?

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.