Time is ripe for Cortina to catch up with The Hour Glass

Cortina is an underperformer with huge potential.PHOTO: ST FILE

SINGAPORE - The Phillips' watch auction in Geneva last month achieved sales amounting to a staggering US$74.5 million (S$101.7 million) - almost double the previous record of US$41.4 million and far exceeding the pre-sale estimate of US$41.2 million.

The event drew collectors and buyers from more than 80 countries, 2,300 registered online bidders and 400 or so attending in person. Half the watches were sold to online bidders with 12 lots exceeding US$1 million each while a single watch was sold for a record US$5.18 million.

Here are several takeaways from this event. First, the appetite for watches has exploded around the world over the past 20 months.

Second, fine watches now rank as collectibles and investments on the same level as art and even real estate.

Third, a lot of buying is now done online.

If a buyer of a Patek Philippe, a Rolex or a Philippe Dufour Grande et Petite Sonnerie watch from New York or Shanghai wants a certain model that is available only in Singapore, that watch will find its way to New York or Shanghai in no time as such information is now readily available online.

High-end Swiss watch sales hit the highest monthly figure in seven years in October.

November could have been even higher, say industry insiders.

A Deloitte study noted that the greatest interest in luxury mechanical watches comes from millennials and Gen Z. Many are young and wealthy Asians many are emerging crypto millionaires.

So here' s the thing.

Singapore is home to two of the best-known watch retailers: The Hour Glass (THG) and Cortina.

I have written about THG several times before. This is a company which dominates the Rolex and Patek Philippe market in Singapore and the region. It has another 41 high-end brands.

THG posted a 63 per cent rise in net revenue to $472 million in the six months to Sept 30.

With its margin of 29 per cent, net profit surged 110 per cent to $62.6 million. Since the beginning of this year, the stock price has surged 2.6-fold to around $2.

Meanwhile, the lesser-followed Cortina has also been quietly making its mark.

The company posted an even higher surge in half-year revenue of 87 per cent to $324 million.

A 30 per cent margin delivered net profit of $25.4 million, a 74 per cent increase over the previous comparable period.

Total equity rose to $272 million, from $259 million at the end of the previous financial year, while cash holdings grew to $160 million, from $130 million.

Interestingly, THG executive chairman Henry Tay holds a 12.7 per cent stake in Cortina.

This is a company where 97.75 per cent of the shares are controlled by just 20 shareholders, including a third by the founding Lim family.

Not surprisingly, the shares are very illiquid on the market.

Also at an absolute price of over $4, Cortina does not attract much retail investor participation.

But there are several reasons why Cortina should actually draw as much interest as THG.

For one thing, it is an underperformer with huge potential. Its market capitalisation of about $670 million is half of THG' s $1.5 billion, but its sales are 70 per cent of THG' s.

Other ratios such as price-book and price-earnings are similar.

Perhaps more importantly, Cortina bought another erstwhile major Singapore watch retailer, Sincere Watch, earlier this year for just $84.7 million.

This is a " steal" given that Sincere changed hands on three previous occasions for much more. In 2007, for example, the Tay family-owned company was sold for a whopping $530 million.

Cortina bought Sincere from Hong Kong billionaire Pollyanna Chu, who had bought it for $232 million. Market speculation was that Ms Chu was trying to recoup losses from the crash in value of some other asset holdings.

While Cortina had an original portfolio of 32 brands compared with the 43 controlled by THG, the acquisition of Sincere will see this portfolio equal or outpace THG' s.

More importantly, the acquisition gives Cortina access to distribution rights to Franck Muller and other brands in 12 more countries in the Asia-Pacific, and especially in China, where Sincere has four Franck Muller boutiques.

The latest financial numbers for Cortina do not fully take into account the consolidation of Sincere' s portfolio. When it does, this listed company' s financial numbers could be much bigger.

Meanwhile, the global demand for watches is likely to intensify, driven by rising stock markets, a growing cadre of crypto millionaires and the proliferation of online watch purchasing. A Morgan Stanley report noted that Rolex sold 810,000 watches last year, while Patek Philippe sold 53,000, Audemars Piguet sold 40,000 and Richard Mille sold 4,300.

The waiting list for some high-end watches has grown longer, from two years to five years. London-listed Watches of Switzerland recently upgraded its full-year outlook after a better than expected first half, guiding for a full-year revenue of £ 1.2 billion (S$2.17 billion).

With a market cap of around £ 3 billion, the stock is trading at a price-earnings multiple of 64 times.

Meanwhile, THG and Cortina are trading at trailing price-earnings multiples of around 14 times.

While THG has jumped from around 80 cents earlier this year to just above $2, Cortina' s stock has barely doubled from around $2.10 earlier this year to just over $4.

The volume of shares traded is relatively thin and the bid-offer spread is wide. Some market experts reckon Cortina could attract interest with more active investor engagement to raise awareness of its growth potential and plans. Perhaps it could even boost dividend payout. Others reckon Cortina could inject liquidity by splitting its stock.

Meanwhile, THG has also been sailing on speculation about a potential delisting.

Mr Tay and his son Michael control over 66 per cent of the shares, while Fidelity Management and its chief executive Abigail Johnson own another 8 per cent.

THG itself has bought back almost 17 million shares, or 2.4 per cent of its stock, since the second quarter of this year, leaving under 25 per cent in the hands of the public.

Whatever the case, just based on the numbers and market outlook, Singapore' s two leading distributors of high-end watches appear to be sitting on a gold mine.