The Hour Glass FY2026: Potentially Higher Dividends?

The Hour Glass (SGX: AGS) recently reported a surprisingly strong performance for FY2026. Headline numbers show revenue up 15% year-on-year (YOY) to S$1.34 billion, while net profits surged by an explosive 32% to S$179.5 million.

With high expectations, I eagerly scrolled down the press release to look at the recommended final dividend—“The Board of Directors recommends a final dividend of 4.0 Singapore cents per share for FY2026.”

Wait! What? It can’t be…

That was my immediate emotional reaction.

However, after cooling down and carefully parsing through the full financial statement alongside last year’s AGM minutes, I am am entirely comfortable with the same final dividend as last year and feel optimistic about its future.

Here’s why.

A Highly Resilient Core Business

If you only read the headlines, it looks like The Hour Glass suddenly became a vastly more profitable business overnight.

In reality, the net profit line was heavily boosted by a S$20.3 million fair value paper gain on their investment properties, a massive swing compared to last year’s S$6.5 million paper loss.

When you strip out this real estate volatility, the underlying retail trajectory becomes crystal clear:

• Normalised Profit Growth: Core operational net profit grew year-on-year at a highly respectable 14% to 15%, structurally supported by the integration of the newly acquired Australian Rolex network.
  
• The Defended Moat: Group revenue climbed 15% to S$1.34 billion, marking five consecutive years of top-line resilience. More importantly, gross margins held firm at above 30%.

In a cooling luxury watch market, weak retailers are forced to slash prices to move inventory, which quickly collapses their margins.

The Hour Glass’s stable 30% gross profit margin (post-pandemic) and ~12% core net profit margin prove that their premier luxury brand partnerships and product scarcity form an elite defence.

A Temporary Dividend Freeze but Future Rise?

So why did The Hour Glass declare the exact same dividend despite such a robust operational performance?

A look at the balance sheet and cash flow statement shows that management chose to prioritise long-term value over short-term payouts, deploying the bulk of their earnings into three key strategic areas:

• The Australian Rolex Network Expansion: The group completed its acquisition of four Australian Rolex boutique network on 26 May 2025 at S$75.3 million. These locations are already boosting both the top and bottom lines, despite only contributing to roughly 10 months of this fiscal year.
  
• Strategic Capital Reinvestment: The group deployed S$35.4 million towards asset and subsidiary additions. Notably, they reclassified prime, owned commercial properties at the Hong Kong Diamond Exchange and Queen Street in Auckland from “investment real estate” into active operational use to directly back their regional storefront growth.
  
• Absolute Debt Clearance: Finally, management executed a net repayment of S$56.7 million in outstanding loans and borrowings. This aggressive deleveraging means THG wrapped up FY2026 with a completely debt-free balance sheet and a massive S$157.5 million cash cushion.

These measures alone absorbed more than 70% of the net operating cash flow. When you factor in dividends paid, share buybacks, and lease liabilities, the group actually dipped into its cash reserves to fund this massive structural foundation.

The good news?

This paves the way for potentially higher dividends ahead.

While not guaranteed, there are clear indications that you could see higher dividends going forward.

This is especially true when you consider that their previously guided total 5-year CAPEX of S$120 million (with a maximum ceiling of ~S$150 million) has been heavily front-loaded into FY2026.

Think about what happens next: a full 12-month contribution from the new Australian acquisition (minus the one-off transaction fees), zero debt left to service, and a projected drop in upcoming CAPEX.

This combination sets the stage for a massive expansion in free cash flow (FCF) over the next few years.

While the board will undoubtedly want to retain a healthy cash buffer for daily operations, opportunistic acquisitions, and share buybacks, the math speaks for itself.

Given their recent track record of anchoring the dividend payout in the low-20% to mid-30% range, the probability of a higher future dividend payout is remarkably high.

Positioned for the Next Decade

Just as investing is part Art and part Science, high-end horology remains far more human than numbers. In both disciplines, the long-term winners are defined not just by raw math, but by an unmeasurable appreciation of values.

In an increasingly digitised, AI-driven world where algorithms dictate online retail experiences, true luxury watch collecting remains unapologetically human-centric.

It relies entirely on heritage, physical scarcity, and deeply trusted local relationships. You cannot buy an allocated Patek Philippe or a rare independent timepiece through a direct-to-consumer app.

Look no further than the outlook statement from the recent press release, which perfectly undergirds the confidence that allowed management to state in the FY2025 Annual Report that the best days of The Hour Glass are still ahead:

“The specialist watch sector is undergoing a profound structural reset–one that will, over the coming decade, reward those with the most authentic partnerships, the most resilient balance sheets, and the deepest understanding of what specialist watch retail offers when information is abundant and genuine expertise is scarce.”

For patient investors who focus on long-term value over short-term gain, this structural reset is precisely where the compounding opportunity lies.

This is why I am completely at peace with the paused dividend and remain highly confident holding onto my stake—the foundation is built for the next decade.

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