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CIMB being so conversative with this company.
Sarine Light/Loupe are going to be huge, diamond retailers market is 10 times bigger than the wholesalers.
Cooperation with big players like Tiffany & Co + economic/credit conditions improvement in India can only benefit to Sarine.
The only problem is counter quite illiquid, maybe stock split could help...
My 2 cents...
Sarine Tech - What is not in the price?
Target S$2.59 (Stock Rating: HOLD)
At 29% of consensus full-year forecasts and 28% of our estimate, 1Q14 earnings were in line with the historical trend. We now assume more Solaris sales in our FY15-16 forecasts, paring our sales forecasts by 8-13%. We have also raised R& D spending assumptions and factored in higher effective tax rates. These lead to 4-13% downgrades of FY15-16 core EPS. The success of its recurring revenue model in the past four years makes this the more relevant period to benchmark Sarine' s valuation against. Based on 18x CY15 earnings, our target price is unchanged at S$2.59 (18x or 1 s.d. above FY10-13 average P/E, prev. 16x P/E, 0.5 s.d. above 6-year average). As earnings catalysts from new products have yet to kick in, we downgrade the stock from Add to Hold.
Tax spoiler
1Q14 results were in line with market and our expectations. Gross margins improved yoy to 73% from 70% last year. As guided by management previously, R& D expenses rose 52% yoy. Effective tax rate for 1Q14 was 16.5% due to certain higher tax assessment by the tax authorities in Israel. To be prudent, we are assuming this new tax rate in our forecasts. Sarine estimated that sales were impaired by 10% due to the shortage of available credit in India where the bulk of its customers are located.
FY14 - a transition year
FY14 is likely to remain a year of transition for Sarine. For the Light product, Sarine has been marketing this in the US, Korea and Taiwan. As for the Loupe product, trials in the US and India were completed successfully. Commercial offering of this product is targeted for 3Q14.
Downgrade to Hold
We believe that the success of its recurring revenue model with the Galaxy product is reflected in the current price, capping P/E-based re-rating. Going forward, re-rating must come from earnings expansion as Sarine proves that Light/Loupe can be similar, if not bigger, in potential than Galaxy. Sarine will need time to demonstrate this. We provide overleaf a base-case scenario when that happens.
1Q14 results were in line with market and our expectations. Gross margins improved yoy to 73% from 70% last year. As guided by management previously, R& D expenses rose 52% yoy. Effective tax rate for 1Q14 was 16.5% due to certain higher tax assessment by the tax authorities in Israel. To be prudent, we are assuming this new tax rate in our forecasts. Sarine estimated that sales were impaired by 10% due to the shortage of available credit in India where the bulk of its customers are located.
FY14 - a transition year
FY14 is likely to remain a year of transition for Sarine. For the Light product, Sarine has been marketing this in the US, Korea and Taiwan. As for the Loupe product, trials in the US and India were completed successfully. Commercial offering of this product is targeted for 3Q14.
Downgrade to Hold
We believe that the success of its recurring revenue model with the Galaxy product is reflected in the current price, capping P/E-based re-rating. Going forward, re-rating must come from earnings expansion as Sarine proves that Light/Loupe can be similar, if not bigger, in potential than Galaxy. Sarine will need time to demonstrate this. We provide overleaf a base-case scenario when that happens.
Source: CIMB Daybreak - 14 May 2014 ...last:$2.57...
Sarine Tech - Another glittering quarter
- Record 1Q14 net profit of USD9.1m (+12.6% YoY, +103.5% QoQ) in line with our expectations.
- Strong GalaxyTM sales with 15 units delivered in 1Q14, bringing installed base to 157.
- Maintain BUY with unchanged DCF-based TP of SGD3.09.
What' s New
Sarine reported in-line 1Q14 results with record net profit of USD9.1m (+12.6% YoY, +103.5% QoQ), which made up 28% and 29% of our and consensus full-year forecasts. GalaxyTM penetration made further inroads during the quarter with 15 more units deployed (4Q13: 15, 1Q13: 9), bringing the total number of installed units to 157. Higher traditional planning product sales also contributed to the record profit. More than 30% of 1Q14 revenue was recurring in nature.
What' s Our View
GalaxyTM sales would have been higher in 1Q14 were it not for a deterioration in credit availability in India. Sarine believes this situation curtailed the manufacturers' ability to purchase big-ticket items, dampening GalaxyTM sales by an estimated 10%. Nevertheless, this should eventually ease as the INR has stabilised against the USD. We expect GalaxyTM deployments in FY14E (54 units) to be higher than the year before (46 units). Marketing of Sarine LightTM is on track and more agreements are expected to be signed in 2Q14. However, significant contributions (> 5% of revenue) should only be expected in FY15E and beyond. Commercialisation of Sarine LoupeTM is expected in 3Q14 as production starts to ramp up in the coming months.
We continue to like Sarine for its potential to revolutionise industry business processes with its game-changing products. Despite the strong earnings, we keep our earnings forecasts intact in anticipation of rising marketing expenses and seasonal factors. Maintain BUY with unchanged DCF-based TP of SGD3.09 (WACC: 9.6%, g: 2%). Implied FY14E/15E P/Es are 26.3x/19.9x.
Source : Maybank Kim Eng Research
...last:$2.56...
Broke 50MA. The sparkle is gone.
Sarine Technologies: Hitching A Ride On Luxury Spending
.... ...last:$2.60...
Holding a 20 years strong operating history in the diamond planning and diamond manufacturing equipment industry, Sarine Tech is crowned as the market leader and commands a staggering 75 % market share within its industry, essentially being labelled as a semi-monopoly.
Investment Merits
- Semi-monopolistic position with product offerings moated with its proprietary technology, as displayed with its superior gross profit margin of > 70% and occupying 75% of market share
- Strong earnings visibility as the company' s business model creates a recurring income stream via a per-use basis of its equipment, as opposed to the sale of equipment
- Debt-free balance sheet
Investment Risks
- A further depreciation of rupees as a large proportion of the company' s revenue is derived from India
- The diamond industry is cyclical and therefore susceptible to economic headwinds which could cause the demand of diamonds to fall
- As Sarine is incorporated in Israel, the company is exposed to geopolitical risk between Israel and the Middle Eastern countries
SI Research Takeaway
Over the years, luxury spending has been growing leaps and bounds, from fanciful electronic gadgets, posh restaurants, majestic jewellery to luxury cars, driven by a growing proportion of middle income households who are commanding a higher level of disposable income.
Barring any unforeseen circumstances, such as " gold becoming forever," diamonds which are a subset of luxury spending, are set to further ride on the growth story.