(Oct 30): The market is warming up to luxury watch retailer The Hour Glass, which we added to our Singapore Market Portfolio on Oct 10. During the week to Oct 24, the stock rallied 6.2%, on reports that Swiss watch exports to Singapore saw a 90% y-o-y surge in September to CHF179.2 million ($246 million).

Exports of Swiss watches to Singapore have improved significantly this past year, according to data from the Federation of the Swiss Watch Industry. With the latest data for September, exports of Swiss watches to Singapore for the first nine months of the year now stand at CHF824.9 million, up 11.5% y-o-y. That makes Singapore the seventh- largest buyer of Swiss timepieces in the world. Last year, Switch watch exports to Singapore were down 10.4%.

It is not just Singapore that is buying more Swiss watches, though. Notably, shipments to Hong Kong — the biggest buyer of Swiss timepieces — rose 13.7% y-o-y in September. In fact, exports to Hong Kong have increased every month since May.

This is a positive development for The Hour Glass, which is now up about 6.2% since we added it to our portfolio. All in, the group has about 40 outlets in Singapore and elsewhere in the region. For its 1QFY2018 ended June 30, The Hour Glass reported a 15% y-o-y decline in earnings to $6.9 million on an 11% rise in revenue to $165.9 million. As at June 30, the company had a net asset value of 69 cents a share. Even after its run, the stock is still trading at just 10 times earnings. Cortina Holdings, its locally listed peer, is trading at nearly 12 times earnings, while Hong Kong-listed Chow Tai Fook Jewellery Group is trading at more than 28 times earnings.

Bracing for Chew’s to tumble
At the point when we calculated our fund’s performance for the current week, our best performer was egg farmer Chew’s Group. Since we added it to the portfolio on Jan 10, the stock had returned 86.1%, fuelled in part by news that the company’s controlling shareholder was exploring a sale of the company. In fact, the stock rose 10.6% in July, after the company announced this.

However, on Oct 25, the day after our performance was calculated, Chew’s said it had been informed by its controlling shareholder that negotiations have been terminated. As such, it seems quite likely that Chew’s will tumble in the days to come. We plan to reassess this particular holding carefully over the next couple of weeks. In particular, we will look into the company’s capacity expansion initiative before doing anything.

Last year, Chew’s acquired a 30- year leasehold site on Neo Tiew Road for $3.98 million, which will allow the egg farmer to produce up to one million eggs a day. Its current farm can produce up to 500,000 eggs a day. Relocation to the new site is slated to take place by 2019.

SGX reports better results
On the other hand, we are expecting to see shares in the Singapore Exchange rise on improving profitability over the next couple of quarters, on growing activity in the cash and derivatives markets. On Oct 25, SGX reported a 7% y-o-y rise in revenue to $204 million for its 1QFY2018 ended Sept 30. Earnings for the quarter increased 9% y-o-y to $91 million. SGX will pay out an interim dividend of five cents a share, unchanged from the same quarter last year.

Revenue from trading of equities and fixed income, which accounted for 49% of total revenue, increased 2% y-o-y to $99.7 million. Derivatives revenue was up 14% y-o-y to $80.6 million. Market data and connectivity revenue rose 10% y-o-y to $24.2 million.

One concern, however, is that revenues for the equities and fixed income as well as the derivatives businesses were actually slightly lower on a q-o-q basis. Still, Loh Boon Chye, CEO of SGX, says he expects the momentum in market activity to stay buoyant and return to the higher levels of past years. We added this stock to our portfolio on March 14. So far, it has delivered a total return of 3.1%.

CapitaLand’s units begin reporting
Elsewhere, CapitaLand’s unit, Ascott Residence Trust (ART), announced its 3QFY2017 results on Oct 24. Distribution per unit (DPU) fell 28% to 1.69 cents from the year before, owing to a bigger unit base after a rights issue in March. The US, Japan and Singapore markets continued to be challenging amid an oversupply and weak demand.

Nevertheless, DBS Group Research sees ART continuing its strategy of selling properties that have limited growth and recycling the proceeds into more attractive assets. “This ability to sell its properties above book value, and at the same time reduce its reliance on equity raising to drive growth, we believe, warrants ART to trade around its book value,” say analysts Mervin Song and Derek Tan in a report. They have a “buy” call on the stock and a price target of $1.28.

CapitaLand Mall Trust (CMT) also reported results this week. Revenue for 3QFY2017 fell 0.2% y-o-y to $169.4 million, on lower rental at some of its properties. Net property income was up 1.6% y-o-y to $120 million on the back of lower property taxes and expenses. Income available for distribution was up 0.3% y-o-y. DPU for the quarter was 2.78 cents, up 0.1% from the year before.

The results were in line with most analysts’ expectations. RHB Research Institute Singapore has a “hold” call, with a price target of $2.08, as the retail market continues to remain soft. CMT’s malls may also be affected by the new Downtown Line 3 that will disrupt shopper traffic. However, DBS has a “buy” call on the unit, with a price target of $2.19 for its divestment of the serviced residence component of Funan. “We maintain a flat DPU forecast over FY2018 and FY2019 before Funan returns to operation,” says DBS.

CapitaLand holds a 29.4% stake in CMT and a 41% stake in ART. It also earns management fees from both the real estate investment trusts. CapitaLand was added to our portfolio on Jan 4, and has since delivered a return of 23.5%. The property giant is expected to report its results before Nov 8.

Our portfolio had gained 0.8% between Oct 17 and 24. The benchmark Straits Times Index gained 0.2% over the same period. Since its inception on Jan 4, the portfolio has returned 14.8%, while the STI gained 14.1%.


This article appeared in Issue 803 (Oct 30) of The Edge Singapore.