The Hour Glass AGM 2026: Bye-Bye Higher Dividends?

In my previous review of The Hour Glass (SGX:AGS) FY 2026 results, I hinted that we might be positioning for higher dividend payouts down the road.

However, after attending yesterday’s AGM, my expectations have taken a reality check: a dividend hike looks a lot slimmer now, at least in the short term.

Here are my key takeaways from the meeting. They are mixed with my own interpretation and research, so treat them as opinion rather than verbatim notes.

I will also share why, despite the lower short-term dividend growth potential, I’m comfortably holding onto my shares.

Current Business Momentum

There were the usual requests by shareholders for a geographical breakdown, but Group Managing Director Michael Tay reiterated that they do not disclose specific regional breakdowns due to operating in a sensitive industry where key brand partners are private entities.

That said, here are a few qualitative observations on THG’s current business momentum:

• All-Round Growth: All geographical segments grew their top lines and did better than the previous year.
• Oceania: The integration of acquired Rolex boutiques has progressed smoothly. THG is expanding rapidly here, growing from 15 points of sale currently to 23 by the end of 2027.
• Thailand and Vietnam: THG maintains a strong position via its joint venture with Prima Times in Thailand. Last year’s acquisition of Time Midas has further solidified their footprint in Bangkok, and management is actively exploring entry into Vietnam.
• Indonesia: Having attempted to enter the Indonesian market twice in the past, THG found the landscape too complex and is currently not pursuing further expansion there.
• Macro Factors (Tariffs & Geopolitics): Interestingly, tariffs have served to heighten the desirability of luxury timepieces, while ongoing Middle East conflicts have redirected demand into the U.S. and Asian markets.

Forward Strategy: Concentrated Bets and Operational Guardrails

The strategic shift toward depth over breadth has been ongoing for a while. THG will continue its proven strategy of focusing on fewer, but strictly premier, brand partners.

Specifically, management is placing an increased emphasis on standalone mono-brand boutiques. Even within multi-brand environments, THG plans to curate at most 8 to 10 brands per location.

While concentrating on tier-one brand partners has significantly benefited THG, it naturally increases concentration risk — namely, the severe impact if a key partnership were ever compromised.

Management is fully mindful of this downside risk and builds active operational guardrails to safeguard these relationships.

While classic diversification might seem like the safer approach on paper, as highlighted in the Chairman’s insightful statement on the Swiss watch industry, focusing on top-tier quality partners yields far greater long-term resilience.

The strength of THG’s existing partnerships is undeniable:

• Preserving Doors: THG has retained a higher proportion of Patek Philippe outlets relative to other global distributors undergoing global outlet cuts.
• Executive Backing: The rare personal appearances by Patek Philippe President Thierry Stern at the grand openings in Ginza, Tokyo and Siam Paragon, Bangkok underscore the depth of this mutual trust.

Continuing this concentrated, high-tier strategy is precisely why THG needs to maintain such a substantial balance sheet buffer.

Capital Allocation: Reinvestment Over Immediate Payouts

Maintaining a robust, debt-free balance sheet gives tier-one partners complete confidence that THG has the financial firepower to preserve and elevate the prestige of their brands, regardless of macroeconomic headwinds.

THG’s cash buffer signals that they have the capability to fund heavy multi-million-dollar CapEx rollouts internally (like the ongoing Oceania expansion), while absorbing cyclical downturns without flinching.

During the AGM, Michael guided that CapEx is now expected to be around S$200 million from FY 2024 to FY 2028. That’s S$50 million higher than what’s shared last year, but there’s likely compelling expansion opportunities on the ground.

On a personal note, Michael also shared his perspective on the psychological burden of leverage during a market crisis. He recalled that during a past downturn, THG’s debt-to-equity ratio was a mere 30%, yet in the heat of the moment, it felt like 300%!

To him, maintaining the cash buffer and remaining debt-free provides crucial peace of mind. This psychological freedom is essential to think clearly and act decisively when others panic.

Hence, management is choosing to maintain current dividend levels and prioritise capital for strategic reinvestment and deepening their business moat.

Furthermore, management views share buybacks as a direct, value-accretive return to shareholders through higher EPS and NAV over time.

Trading at just a P/E ratio of ~10x, they view the stock as undervalued and intend to continue repurchasing shares as long as it makes economic sense.

Beyond the Dividends

That decision is likely disappointing for pure income-seeking investors in the short term.

However, if this capital allocation yields a stronger, higher-earning business over the long run, future capital gains should more than compensate. In fact, year-to-date, THG’s share price is already up over 23%!

This brings to mind a point I touched on recently in Why Dividend Investing is Not Just About Dividends — capital gains aren’t exclusive to growth stocks; they belong to dividend investing, too.

Finally, dividend growth isn’t frozen forever.

Once this CapEx cycle winds down over the next few years, or as share buybacks slow down when the stock re-rates higher, management will likely step up payouts once again.