AGS

$2.3 SGD 1.49B market cap 22 February 2026

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The Hour Glass Limited AGS BUFFETT / MUNGER / KLARMAN SUMMARY

1 SNAPSHOT

Price$2.3

Market CapSGD 1.49B

EVSGD 1.37B

Net DebtSGD -0.12B

Shares0.648B

2 BUSINESS

Asia-Pacific's premier luxury watch retailer, operating 70+ boutiques across 8 countries (Singapore, Malaysia, Thailand, Vietnam, Japan, Hong Kong, Australia, New Zealand) as an authorized dealer for Rolex, Patek Philippe, Audemars Piguet, and 30+ other prestige brands. Founded in 1979 by Dr Henry Tay, the company generates revenue from retail watch and jewelry sales, with supporting income from investment properties and associates (THG Prima Times in Thailand/Vietnam).

Revenue: SGD 1.16B Organic Growth: 2.9%

3 MOAT WIDE

Primary moat: 45-year authorized dealer relationships with Rolex, Patek Philippe, and Audemars Piguet - the most supply-constrained and desirable watch brands globally. Rolex has been actively reducing its global dealer network from ~8,000 to ~4,500, favoring larger, better-capitalized partners like THG. New Rolex authorizations are essentially impossible to obtain. Supporting moats include 70+ boutiques in prime Asian locations (Orchard Road, Ginza, Central HK), SGD 217M in owned investment properties, and deep cultural capital in the horological community. The moat is widening as brands consolidate toward fewer authorized dealers.

4 MANAGEMENT

CEO: Michael Tay (since 2015)

Excellent capital allocation: reduced D/E from 15.5% to 5.9% over 5 years, bought back SGD 76M in shares (FY2022-2025), acquired Australian Rolex boutiques for AUD 90M, invested SGD 80M in prime investment properties, and maintained consistent dividends through cycles. Conservative approach with SGD 500M MTN program available but unused. Tay family owns 73% with deep alignment.

5 ECONOMICS

15.2% Op Margin

17.1% ROIC

SGD 0.13B FCF

-0.6x Debt/EBITDA

6 VALUATION

FCF/ShareSGD 0.20

FCF Yield8.8%

DCF RangeSGD 2.80 - 3.50

Base FCF SGD 140M, 6% growth years 1-5 (conservative vs +14% H1 FY2026), 3% growth years 6-10, 2.5% terminal, 9% discount rate. Includes Australian Rolex contribution ramp-up.

7 MUNGER INVERSION -23.2%

Kill Event	Severity	P()	E[Loss]
Asian economic recession reduces luxury spending 30%+	-35%	15%	-5.3%
Rolex/Patek goes direct-to-consumer, bypassing authorized dealers	-70%	5%	-3.5%
Tay family governance failure or succession crisis	-25%	10%	-2.5%
Currency headwinds (SGD appreciation vs AUD, THB, JPY)	-8%	30%	-2.4%
Swiss watch industry secular decline (smartwatch disruption)	-40%	5%	-2.0%
Inventory write-downs from watch market correction	-10%	20%	-2.0%

Tail Risk: Combined scenario of Rolex going DTC during an Asian recession would compound to -50% to -60%, but estimated combined probability is <1%. The fortress balance sheet (net cash, low debt) provides significant cushion against any single risk event.

8 KLARMAN LENS

Downside Case

In the bear case, luxury spending normalizes further with continued Chinese weakness. Revenue declines 10-15% over 2 years, margins compress to 10%. At 10x trough earnings of SGD 0.16, the stock trades at SGD 1.60 (-30%). However, the SGD 1.43 NAV per share (including SGD 217M in investment properties) provides a hard floor. Net cash position means no financial distress risk.

Why Market Wrong

The market treats The Hour Glass as a generic luxury retailer exposed to Chinese consumption risk. In reality, it is a franchise-quality authorized dealer with irreplaceable brand relationships, 73% family ownership, net cash, and exposure to the fastest-growing luxury markets in ASEAN and Australasia. The 9.9x P/E implies zero growth, yet H1 FY2026 shows +14% revenue growth and +23% profit growth. The Australian Rolex acquisition adds a material new revenue stream that is not yet reflected in trailing earnings.

Why Market Right

Bears argue that the luxury watch cycle has peaked, secondary market prices are declining, and brand concentration risk is high. If Rolex or Patek materially changed their distribution strategy, THG's moat would erode. The low free float (26%) and Singapore listing create a permanent liquidity discount. FY2025 margins have already compressed significantly from FY2023 peaks.

Catalysts

1. H2 FY2026 results confirming the recovery trend (+14% revenue growth). 2. Full-year contribution from Australian Rolex acquisition. 3. Swiss watch export recovery as Chinese demand stabilizes. 4. Continued share buybacks at undervalued prices. 5. Potential dividend increase as earnings recover.

9 VERDICT BUY

A T2 Resilient

Strong Buy$1.8

Buy$2

Sell$3.5

The Hour Glass is an exceptionally high-quality franchise business trading at deep-value multiples. With irreplaceable authorized dealer relationships, a fortress balance sheet, 73% family ownership, and clear growth catalysts from the Australian Rolex expansion and Asian luxury recovery, the stock offers compelling risk-adjusted returns. At P/E 9.9x with 8.8% FCF yield, the margin of safety is substantial. Initiate position at current levels and accumulate on any weakness below SGD 2.00.

🧠 ULTRATHINK Deep Philosophical Analysis

AGS - Ultrathink Analysis

The Real Question

The real question is not whether The Hour Glass is a good business - it clearly is, with 45 years of profitability, 17% ROIC, and a founder family that has built one of Asia's most respected luxury retail enterprises. The real question is: In a world where luxury brands increasingly control their own distribution, does the authorized dealer model have a durable future, or are we buying a melting ice cube with a beautiful wrapper?

This is the question that separates the surface-level bull case (cheap P/E, nice margins) from the deeper investment thesis. And the answer lies in understanding something counterintuitive about the luxury watch industry.

Hidden Assumptions

The market is making several assumptions that may be wrong:

Assumption 1: The luxury watch cycle has peaked. The FY2022-23 boom was driven by pandemic-era collecting mania, and normalization means secular decline. This ignores the structural driver: Asian wealth is compounding at 7-10% annually, and luxury watch penetration in markets like Vietnam, Thailand, and even Indonesia is still in early innings. The Hour Glass is not riding a wave - it is surfing a tide. Tides recede temporarily but the ocean keeps rising.

Assumption 2: Authorized dealers are commodity middlemen. The market looks at The Hour Glass and sees a retailer with 31% gross margins, implying a distributor that takes a 30% cut for moving boxes. What it misses is that for Rolex, Patek Philippe, and Audemars Piguet - the three most valuable watch brands on Earth - the authorized dealer IS the brand experience. There is no online shopping for a new Rolex Daytona. There is no Amazon for a Patek Nautilus. You walk into a boutique, you develop a relationship with your sales advisor, you wait. The dealer network is the moat - for both the brand and the dealer.

Assumption 3: China weakness = Asia weakness. The Hour Glass has minimal direct China exposure. Its markets are Singapore, Australia, Japan, Thailand, Vietnam, Malaysia, and Hong Kong. These economies have different cycles and drivers than mainland China. Singapore is booming as a wealth hub. Australia benefits from resource wealth. Vietnam is the fastest-growing luxury market in ASEAN. The market is conflating "Asia" with "China" and discounting the entire region.

Assumption 4: A 26% public float means the stock is uninvestable. For index funds and large institutions, yes. But for individual investors and small family offices, this is actually a feature, not a bug. The low float means the stock is ignored by most analysts and under-researched. The Tay family's 73% stake means they are never selling, which creates a permanent scarcity premium in shares available for trading. Mr. Market occasionally offers shares at silly prices because there are so few shares to trade.

The Contrarian View

For the bears to be right, one or more of these would need to be true:

Rolex decides to go direct-to-consumer. This would be the kill shot. But consider: Rolex has spent decades building the most successful authorized dealer model in luxury. They are actually consolidating - cutting weaker dealers and rewarding stronger ones like THG with exclusive mono-brand boutiques. The 2025 Australian Rolex acquisition happened precisely because Rolex wanted THG, not just any buyer. Going DTC would mean Rolex needs to build retail expertise in 150+ countries, hire tens of thousands of sales staff, take on lease liabilities for thousands of boutique locations, and handle after-sales service locally. The economics strongly favor the current model for brands that sell 1.2 million watches per year across the globe.
The luxury watch is a fad that will die like the luxury pen. This requires believing that mechanical timekeeping has no future in a world of smartphones. Yet Swiss watch exports have grown from CHF 15B in 2005 to CHF 26B in 2024, through the entire smartphone and smartwatch era. Luxury watches have become more, not less, valuable as functional timekeeping became free. They have transcended function to become art, status, and identity. The Apple Watch did not kill Rolex any more than the calculator killed the Montblanc pen - wait, actually, the calculator DID kill the luxury pen market. But watches are different: they are worn publicly, they hold value, and they carry meaning across generations. The Rolex on your wrist communicates something no Apple Watch ever will.
The Tay family destroys value. History says otherwise. Dr. Henry Tay built the company from a single store in 1979 to a SGD 1.5B enterprise. He and his son have navigated the Asian Financial Crisis, SARS, the GFC, COVID, and multiple luxury cycles without ever requiring external capital or making a disastrous acquisition. The capital allocation record - reducing leverage, buying back shares at value prices, investing in prime real estate, expanding through bolt-on acquisitions - is exemplary. The risk is real but the evidence is overwhelmingly positive.

Simplest Thesis

The Hour Glass is the gatekeeper to the most desirable luxury watches in the fastest-growing wealth region on Earth, run by an aligned founding family, and the market prices it as if it were a struggling retailer.

Why This Opportunity Exists

The mispricing exists because of a collision of three structural factors:

First, Singapore small-cap neglect. AGS is too small for global luxury fund mandates (which own LVMH, Richemont, Hermes) and too niche for Singapore index investors (who own DBS, OCBC, Singtel). It falls between the cracks of institutional mandates.

Second, the luxury downcycle narrative. When LVMH reports soft China sales and Richemont's watchmaking division struggles, all luxury stocks get sold. The market uses a single brush to paint The Hour Glass alongside Kering and Burberry, despite THG having dramatically different dynamics (supply-constrained brands, ASEAN exposure, net cash balance sheet).

Third, the founder family's indifference to stock promotion. The Tay family does not do investor roadshows. They do not court analysts. They do not issue earnings guidance. They report twice a year, pay a dividend, and go back to running the business. This is exactly the kind of management you want to own - but it means the stock gets no attention.

The deeper truth is that patient investors are being offered the chance to buy a franchise-quality asset at a price that assumes it is a commodity retailer. The gap between perception and reality is the margin of safety.

What Would Change My Mind

I would sell if:

Rolex makes ANY move toward direct-to-consumer retail in markets where THG operates. Even a single company-owned boutique in Singapore or Sydney would be an existential signal.
The Tay family begins selling significant shares. They own 73%. If they sell even 5%, something has changed.
Gross margins fall below 27% for two consecutive years, suggesting pricing power erosion and potential brand relationship weakening.
The company takes on significant debt (D/E > 40%) for acquisitions outside its core competence. Empire-building by second-generation leaders is a classic value destroyer.
A new competitor gains authorized dealer status for Rolex/Patek in THG's core markets. This would be evidence that brand loyalty is weaker than believed.

None of these signals are currently present. In fact, the trend on every dimension is moving in THG's favor.

The Soul of This Business

At its soul, The Hour Glass is a family business that has earned the trust of the world's most prestigious watchmakers to be their face in Asia. That trust took 45 years to build. It cannot be replicated by a well-funded startup, an ambitious private equity firm, or even a luxury conglomerate. It was earned through decades of consistent execution, cultural contribution to the watch industry, and the personal relationships between the Tay family and the leaders of Rolex, Patek Philippe, and Audemars Piguet.

The competitive position is not just durable - it is deepening. As brands consolidate their networks, the survivors get stronger. The Hour Glass is not just surviving consolidation; it is leading it. The Australian Rolex acquisition is proof: when Rolex needs a partner in a new market, they call The Hour Glass.

This is a business built on something even rarer than a brand or a patent: it is built on trust that compounds over decades. In an industry where the product is hand-assembled by master craftsmen over months or years, the retail partner must embody the same patience, expertise, and long-term thinking. The Tay family, with their medical profession background turned luxury retail vocation, their obsession with watch culture, and their willingness to invest in experiences rather than just transactions, have built something that cannot be reverse-engineered.

The greatest risk to this thesis is not competition or disruption. It is the passage of time itself - the eventual transition from second to third generation, the slow dilution of founding passion into corporate routine. But with Michael Tay only in his mid-50s and the company's culture deeply embedded in its operations, that risk is years, perhaps decades, away.

For the patient investor, The Hour Glass offers something increasingly rare in markets: a high-quality business, conservatively managed, with aligned ownership, at a price that does not require any heroic assumptions to generate attractive returns. You simply need to believe that wealthy Asians will continue to buy luxury watches, and that the companies that have sold those watches for 45 years will continue to do so for the next 45.

That is not a bet on disruption or innovation. It is a bet on continuity. And in a world obsessed with the next big thing, the market has a terrible time pricing the enduring.

Executive Summary

3-Sentence Thesis: The Hour Glass is Asia-Pacific's premier luxury watch retailer with a 45-year heritage, operating 70+ boutiques across 8 countries as an authorized dealer for Rolex, Patek Philippe, and Audemars Piguet. The Tay family's 73% ownership ensures long-term alignment with shareholders, and the business generates exceptional returns (16% ROE, 17% ROIC) with minimal leverage (D/E 5.9%). At P/E 9.9x with 8.8% FCF yield and SGD 1.43 NAV per share, the market significantly undervalues this franchise-quality business that benefits from luxury watch supply constraints and deepening Asian wealth.

Key Metrics Dashboard:

Metric	Value	Assessment
P/E (TTM)	9.9x	Deeply undervalued for quality
P/B	1.61x	Reasonable given ROE
FCF Yield	8.8%	Excellent
ROE (5Y Avg)	17.4%	Passes Buffett test
D/E	5.9%	Fortress balance sheet
Dividend Yield	2.6%	Growing dividend
Beta	0.22	Very low correlation
Payout Ratio	29%	Conservative, room to grow

Verdict: BUY - Strong Buy below SGD 1.80, Accumulate below SGD 2.00, HOLD at current SGD 2.30.

Phase 0: Why This Opportunity Exists

Several structural factors create this mispricing:

Singapore small-cap neglect - AGS is an SGD 1.5B company on SGX, with 73% insider ownership and only 26% public float. Institutional investors struggle to build meaningful positions, and no major international analysts cover it deeply.
Luxury sector pessimism - Global luxury sentiment turned negative in 2024-2025 as Chinese consumption weakened. Swiss watch exports fell 2.8% in 2024, and luxury conglomerates (LVMH, Richemont) saw stock declines. The market has tarred all luxury stocks, including those like AGS with fundamentally different dynamics.
Cyclical earnings normalization - FY2025 profit fell 14% from the FY2023 peak of SGD 174M. The market treats this as trend deterioration rather than the natural normalization from a pandemic-driven boom. H1 FY2026 results (revenue +14%, profit +23%) already show recovery.
Misunderstanding of retail quality - Most watch retailers are commodity distributors. The Hour Glass has deep brand relationships spanning 45 years, proprietary boutique networks, and exclusive authorized dealer status for the most supply-constrained brands in the world (Rolex, Patek).

Phase 1: Risk Analysis (Inversion - What Could Destroy This Business?)

Risk Register

#	Risk Event	Probability	Severity	Expected Loss
1	Rolex/Patek goes direct-to-consumer, bypassing authorized dealers	5%	-70%	-3.5%
2	Asian economic recession/crisis reduces luxury spending 30%+	15%	-35%	-5.3%
3	Tay family governance failure or succession crisis	10%	-25%	-2.5%
4	Swiss watch industry secular decline (smartwatch disruption)	5%	-40%	-2.0%
5	China-related geopolitical disruption (trade war, Taiwan)	10%	-20%	-2.0%
6	Key brand authorization loss (single brand)	5%	-25%	-1.3%
7	Currency headwinds (SGD appreciation vs. AUD, THB, JPY)	30%	-8%	-2.4%
8	Inventory write-downs from watch market correction	20%	-10%	-2.0%
9	Secondary market collapse reducing new watch demand	15%	-8%	-1.2%
10	Regulatory changes (luxury tax, import duties)	10%	-10%	-1.0%
	Total Expected Downside			-23.2%

Deep Dive on Top 3 Risks

1. Brand DTC Risk (Low Probability, Catastrophic Impact) Rolex, Patek Philippe, and Audemars Piguet have historically relied on authorized dealer networks. Unlike fashion luxury brands (Gucci, Louis Vuitton) that have gone direct, watch brands require specialized service infrastructure, trust relationships, and local market expertise. Rolex has actually been consolidating its dealer network, favoring fewer, larger, better-capitalized partners - which benefits The Hour Glass. The 2025 acquisition of Australian Rolex boutiques reinforces this trend. Probability: Very low in the next decade.

2. Asian Economic Recession (Moderate Probability) THG derives ~86% of revenue from South-East Asia & Oceania and ~14% from North-East Asia (Japan, HK). A prolonged Asian recession would hit luxury discretionary spending. However, THG demonstrated resilience during COVID (FY2021 revenue fell only 1% vs FY2020) and the 2015-16 Chinese slowdown. The business has survived the 1997 Asian Financial Crisis, SARS, GFC, and COVID. Mitigation: strong balance sheet (net cash), conservative inventory management.

3. Succession Risk (Moderate) Dr Henry Tay (founder) is the Executive Chairman. Michael Tay (son) is Group Managing Director since 2015. The succession from founder to second generation appears well-managed, with Michael having 25+ years at the company. However, third-generation risk remains. The Tay family's 73% ownership stake ensures deep alignment but creates key-man risk. Mitigation: professional management team, experienced independent board.

Tail Risk Scenario

If Rolex simultaneously went DTC AND an Asian recession hit, losses would compound to approximately -50% to -60%. However, this scenario has an estimated combined probability of less than 1%.

Phase 2: Financial Analysis

Revenue & Growth Analysis

FY	Revenue (SGD M)	Growth	Profit (SGD M)	Net Margin
FY2020	749	-	77	10.3%
FY2021	743	-0.8%	85	11.4%
FY2022	1,033	+39.1%	157	15.2%
FY2023	1,123	+8.7%	174	15.5%
FY2024	1,130	+0.6%	158	13.9%
FY2025	1,163	+2.9%	136	11.7%
H1 FY2026	615	+14.0%	76	12.3%

Observations:

Revenue has grown from SGD 749M to SGD 1,163M in 5 years (CAGR: 9.2%)
The FY2022-23 surge reflected pandemic-era watch collecting boom
FY2024-25 represents normalization, NOT decline
H1 FY2026 shows accelerating growth (+14% revenue, +23% profit), driven by the Australian Rolex acquisition and recovering Asian demand

DuPont ROE Decomposition

Component	FY2025	FY2024	FY2023	5Y Avg
Net Profit Margin	11.7%	13.9%	15.5%	13.4%
Asset Turnover	0.99x	1.00x	1.06x	0.99x
Equity Multiplier	1.27x	1.33x	1.36x	1.36x
ROE	14.7%	18.6%	22.5%	17.4%

ROE has averaged 17.4% over 5 years, well above the 15% Buffett threshold. The decline in FY2025 reflects margin compression during luxury normalization, not structural deterioration. Very low leverage (equity multiplier 1.27x) means returns are driven by genuine business quality, not financial engineering.

Owner Earnings Calculation

FY2025 Owner Earnings (SGD '000):
  Net Income:                    136,083
  + Depreciation & Amortization:  49,410
  - Maintenance CapEx (est.):    (15,000)  [~60% of total CapEx]
  - Lease payments:              (33,854)
  = Owner Earnings:              136,639

  Per share (647.7M shares):     SGD 0.211
  Owner Earnings Yield:          9.2% (at SGD 2.30)

ROIC Calculation

FY2025 ROIC:
  NOPAT = Operating Profit x (1 - tax rate)
        = ~177,000 x (1 - 0.224) = ~137,300
  Invested Capital = Equity + Debt - Cash
                   = 926,676 + 54,811 - 178,689 = 802,798
  ROIC = 137,300 / 802,798 = 17.1%

ROIC of 17.1% significantly exceeds estimated WACC of ~8-9%, indicating the business creates substantial value.

Free Cash Flow Analysis

FY	Operating CF	CapEx	FCF	FCF Margin
FY2025	158	(26)	131	11.3%
FY2024	132	(17)	115	10.2%
FY2023	161	(94)	67	6.0%
FY2022	221	(13)	209	20.2%
FY2021	174	(13)	162	21.8%

FCF has been consistently positive and substantial, averaging SGD 137M per year. The FY2023 dip reflected elevated CapEx for boutique upgrades, not operational weakness.

Balance Sheet Fortress

Net Cash: SGD 124M (cash SGD 179M - loans SGD 55M)
D/E Ratio: 5.9% (lowest in 5 years, declining trend)
Investment Properties: SGD 217M (prime real estate in Singapore, Hong Kong, Australia, NZ)
Current Ratio: 3.5x
No corporate bonds outstanding (despite having a SGD 500M MTN program available)
Inventory: SGD 328M at 2.4x turnover - healthy and productive

The balance sheet is exceptionally conservative. The company owns significant real estate, has net cash, and maintains access to undrawn credit facilities. This is a financial fortress.

Valuation

DCF Valuation (Conservative):

Assumptions:

Base FCF: SGD 140M (normalized, including Australian Rolex contribution)
Growth Phase (Years 1-5): 6% CAGR (conservative given +14% H1 FY2026)
Mature Phase (Years 6-10): 3% CAGR
Terminal Growth: 2.5% (luxury inflation)
Discount Rate: 9% (low leverage, stable business)

Year 1-5 PV:   SGD 634M
Year 6-10 PV:  SGD 455M
Terminal PV:    SGD 1,076M
Total EV:       SGD 2,165M
- Net Debt:     (SGD 124M net cash)
Equity Value:   SGD 2,289M
Per Share:      SGD 3.53

Current Price:  SGD 2.30
Upside:         +53%
Margin of Safety: 35%

Owner Earnings Valuation:

At SGD 0.211 owner earnings per share, applying a 12x-15x multiple (justified for a high-quality, low-risk business):

Low: SGD 0.211 x 12 = SGD 2.53
Mid: SGD 0.211 x 13.5 = SGD 2.85
High: SGD 0.211 x 15 = SGD 3.17

Relative Valuation:

Metric	AGS	Watches of Switzerland (WOSG)	Luxury Retail Average
P/E	9.9x	20x+	18-25x
P/B	1.6x	3-5x	3-5x
EV/EBITDA	~7x	10-12x	12-15x
Dividend Yield	2.6%	0-1%	1-2%
D/E	6%	50-100%	30-80%

The Hour Glass trades at a massive discount to Western luxury retail peers on every metric. Even applying a "Singapore discount" of 20-30%, fair value is SGD 2.80-3.50.

Fair Value Range: SGD 2.80 - 3.50 per share

Phase 3: Moat Analysis

Moat Rating: WIDE (Narrow-to-Wide)

Moat Sources

1. Authorized Dealer Relationships (Primary Moat - Extremely Durable)

The Hour Glass has been an authorized dealer for Rolex since its founding in 1979 - a 45-year relationship spanning three generations of watch brand leadership. Patek Philippe, Audemars Piguet, and other top brands similarly maintain decades-long relationships.

Why this is nearly impossible to replicate:

Rolex has been actively reducing its global dealer count (from ~8,000 to ~4,500 over 15 years)
New authorizations for Rolex are essentially impossible to obtain
Brand relationships are cultivated over decades, not years
The AUD 90M Australian Rolex acquisition in 2025 demonstrates how THG expands within existing brand relationships rather than new entrants gaining access

Measurable evidence: The Hour Glass is the ONLY authorized multi-brand luxury watch retailer of its scale in the Asia-Pacific region. No competitor has comparable breadth and depth of brand relationships.

2. Scale & Geographic Network (Strong)

With 70+ boutiques across Singapore, Malaysia, Thailand, Vietnam, Japan, Hong Kong, Australia, and New Zealand, THG has the most extensive luxury watch retail network in Asia-Pacific outside of China. This geographic diversification across 8 countries provides:

Risk mitigation (no single-market dependence)
Purchasing power with Swiss brands
Ability to serve traveling luxury consumers across the region

3. Cultural Capital & Expertise (Moderate)

The Hour Glass positions itself as a cultural institution, not just a retailer. The IAMWATCH event, editorial content, and decades of horological expertise create brand equity that transcends transactional retailing. Dr. Henry Tay and Michael Tay are recognized figures in the global watch industry.

4. Real Estate & Location (Supporting)

SGD 217M in investment properties, plus owned boutique locations in prime sites across Asia-Pacific. Premium retail locations in Orchard Road (Singapore), Ginza (Japan), Central (Hong Kong), and George Street (Sydney) are extremely difficult to replicate.

Moat Durability Assessment

Threat	Impact on Moat	Timeline
DTC by brands	Would destroy moat	10+ years (very unlikely)
New competitor	Cannot replicate dealer relationships	Permanent
E-commerce	Limited threat - luxury watches are high-touch	Permanent
Chinese retailers	Limited to China market	Neutral
Smartwatches	Different market segment entirely	Permanent

Moat Verdict: The authorized dealer relationship is the core moat. It is widening, not narrowing, as brands consolidate their retail networks toward fewer, better-capitalized partners. The Hour Glass is a primary beneficiary of this trend.

Phase 4: Decision Synthesis

Management Assessment

Leadership Quality: A

Factor	Assessment
Dr Henry Tay (Founder/Chairman)	Founded 1979. 45+ years. Medical doctor turned luxury retail pioneer.
Michael Tay (CEO since 2015)	Oxford Brookes 1st class honors. 25+ years at THG. Industry leader.
Insider Ownership	73% Tay family (TYC Investment 52%, personal holdings 14%, AMSTAY 5%)
Capital Allocation	Excellent. Conservative D/E, share buybacks, property acquisitions.
Succession	Second-generation transition complete. Third-generation TBD.

Capital Allocation Track Record:

Reduced D/E from 15.5% (FY2021) to 5.9% (FY2025)
Bought back SGD 76M in shares over FY2022-2025
Invested SGD 80M in prime investment properties (FY2025)
Acquired Australian Rolex boutiques (AUD 90M) - strategic expansion
Maintained consistent dividends through cycles

This is textbook Buffett-quality capital allocation: conservative balance sheet, opportunistic acquisitions, returning capital to shareholders.

Position Sizing

Using the Kelly Criterion framework:

Estimated probability of outperformance: 70%
Expected return if correct: +40% (to SGD 3.20)
Expected loss if wrong: -20% (to SGD 1.84)
Kelly fraction: 70% - (30% / (40%/20%)) = 55%
Half-Kelly (conservative): 27%

Recommended allocation: 3-5% of portfolio

This higher-than-typical allocation reflects:

Very low downside risk (fortress balance sheet, net cash)
Strong insider alignment (73% family ownership)
Clear margin of safety at current valuation
Low beta (0.22) provides portfolio diversification

Entry Strategy

Price Level	Action	P/E at Level	Rationale
SGD 1.80	Strong Buy	7.8x	Deep value, crisis pricing
SGD 2.00	Accumulate	8.6x	Attractive entry
SGD 2.30	Hold/Small Position	9.9x	Fair-to-undervalued
SGD 2.80	Hold	12.1x	Approaching fair value
SGD 3.50	Consider Trim	15.1x	Fully valued

Monitoring Metrics

Metric	Threshold	Action
Revenue growth	< -10% YoY	Investigate
Gross margin	< 28%	Concern
D/E ratio	> 30%	Review capital allocation
Inventory turnover	< 1.5x	Watch for write-downs
Rolex/Patek relationship	Any negative signal	Deep review
Tay family selling	Any material disposal	Exit signal

Expected Return Scenarios

Scenario	Probability	3-Year Return	Weighted
Bull (luxury recovery, expansion)	30%	+80%	+24%
Base (steady growth, modest re-rating)	45%	+40%	+18%
Bear (luxury recession, margin compression)	20%	-10%	-2%
Tail (brand loss, crisis)	5%	-40%	-2%
Expected Return			+38%

Including dividends (2.6%/year x 3 = +7.8%), total expected 3-year return is approximately +46%, or **13.5% annualized**.

Investment Decision

VERDICT: BUY

The Hour Glass is a rare franchise-quality business trading at deep-value multiples. The combination of:

Irreplaceable moat - 45-year authorized dealer relationships with Rolex, Patek Philippe, AP
Fortress balance sheet - Net cash, 5.9% D/E, SGD 217M investment properties
Aligned ownership - Tay family owns 73%, no agency problem
Growth optionality - Australian Rolex expansion, Vietnam growth, ASEAN wealth tailwinds
Compelling valuation - P/E 9.9x, FCF yield 8.8%, DCF fair value SGD 3.00-3.50

... makes this an exceptionally attractive investment for patient, long-term oriented investors.

The primary risk is illiquidity (26% public float, SGD 1.5B market cap) rather than business quality. This is a company worth owning for 10+ years.

Action: Initiate position at current levels. Accumulate on any weakness below SGD 2.00. Target allocation: 3-5% of portfolio.

Sources: The Hour Glass Annual Reports FY2020-FY2025, SGX filings, stockanalysis.com, company investor relations.