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2 Undervalued Luxury Retailers That Have Increased Their Dividends

Recently, two Singapore-listed luxury watch retailers raised their final dividends in what could be increased confidence of better things to come in the industry. They are also selling at valuations lower than that of the SPDR STI ETF (SGX: ES3), which can be taken as a proxy for the Singapore stock market benchmark, the Straits Times Index (SGX: ^STI).

Let’s find out more.

No. 1: Cortina Holdings Limited

Cortina Holdings Limited (SGX: C41) is a luxury watch retailer that began operations in 1972. It now has a presence in Singapore, Malaysia, Thailand, Indonesia, Hong Kong, and Taiwan.

For its financial year ended 31 March 2019 (FY2019), the company increased its dividend to 5.5 Singapore cents per share (comprising an ordinary dividend of 2.0 Singapore cents and a special dividend of 3.5 Singapore cents) from 4.5 Singapore cents (comprising an ordinary dividend of 2.0 Singapore cents and a special dividend of 2.5 Singapore cents) in FY2018. The FY2019 dividends represent a dividend payout ratio of a mere 31%.

The higher dividend is in line with the company’s strong performance in FY2019. For the year, net profit surged 31% year on year to S$29.2 million from S$22.3 million. The bottom line improved despite a 1% drop in sales to S$460.8 million.

What’s more impressive is that free cash flow (FCF) for FY2018 ballooned 62% to S$80.3 million from S$49.5 million. The total dividend of 5.5 Singapore cents per share is just 11% of FY2018’s FCF. This shows that there’s plenty of room for dividends to grow in the future.

Looking ahead, the company commented:

“The global economy remains uncertain and will continue to pose challenges to the Group’s future performance. On the other hand, the purchasing power of the regional consumers continues to rise. The Group will continue to review and fine tune its strategies and adapt to the changes and emerging trends in the industry and in the markets that it operates in. Barring unforeseen circumstances, the Group will remain profitable.”

At Cortina’s closing share price of S$1.19 on 6 June, it had a price-to-earnings (P/E) ratio of 6.7 and a dividend yield of 4.6% (including special dividends). In comparison, on the same day, the SPDR STI ETF had a P/E ratio and dividend yield of 11.4 and 3.6%, respectively.

No. 2: The Hour Glass Ltd

The Hour Glass Ltd (SGX: AGS), or THG, is another luxury watch retailer. THG opened its first boutique in 1979 in Singapore. On top of having a presence in our city-state, it has grown to establish itself in countries such as Malaysia, Thailand, Vietnam, Australia, Japan, and Hong Kong.

THG raised its first and final dividend for the financial year ended 31 March 2019 (FY2019) to 3.0 Singapore cents per share, up from 2.0 Singapore cents. Just like Cortina, THG posted growth in its bottom line. Net profit climbed 41% to S$70.4 million from S$49.8 million. However, the similarities end there. Unlike its peer, THG saw its revenue grow 4% to S$720.9 million. Its FCF, though, fell from S$74.9 million to S$47.6 million.

The FY2019 dividend per share of 3.0 Singapore cents represents a dividend payout ratio of 30% in terms of earnings and 44% in terms of FCF. Similar to Cortina, the conservative payout ratios mean dividends could go up in the future.

Explaining its latest financial performance, THG said that, “[a]fter experiencing sluggish demand for some years, the trend for luxury watches in Asia picked up and stabilised during the course of FY2019.”

At THG’s closing share price of S$0.775 on 6 June, it had a P/E ratio of 7.8 and a dividend yield of 3.9%. With the SPDR STI ETF’s P/E ratio of 11.4 and dividend yield of 3.6%, THG certainly looks undervalued.

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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 Sudhan P doesn’t own shares in any companies mentioned.