Maybank Kim Eng analyst Eric Ong is positive on Sarine Technologies as it posted its best results in the 1HFY2021 ended June since 2014.
He has also increased his target price to 94 cents from 70 cents previously as he rolls forward his valuation on the counter to FY2022.
Sarine Tech’s net profit of US$12.6 million ($17.0 million), which surged 972.4% y-o-y, exceeded the FY2021 estimates forecasted by the brokerage as well as the consensus.
See: Sarine Tech reports surge in net profit to US$12.6 mil for 1H21
The higher figures were driven by the recovery of manufacturing activities amid robust demand for diamond jewellery after the reopening of retail activities in the company’s key markets.
As buoyant industry conditions drive topline growth, Ong expects Sarine Tech’s new business comprising rough and polished diamond wholesale and retail-related revenues to continue growing with broader commercial adoption. For the 1HFY2021, the business stood at slightly under 6% of the company’s total turnover.
Ong has also increased his earnings per share (EPS) estimates for the FY2021, FY2022 and FY2023 by 57%, 36% and 22% given the better-than-expected sales and operating leverage.
Sarine Tech’s technologies, which span the entire value chain due to its full suite of equipment for diamond and gemstone production is a dominant player in the market, says Ong.
“Its Galaxy™ system is the first commercially-available technology that automates inclusion mapping, helping clients maximise yields of their rough diamonds,” he notes.
Sarine has also introduced “new technologies for polished diamonds that could help retailers and wholesalers enhance differentiation of polished diamonds, potentially setting a new industry standard,” he adds.
Furthermore, the company is in an industry where there are strong barriers to entry given a technological lead that is hard to replicate. Sarine also has an established customer base, which adds to its value proposition.
Upside factors to the counter include the further penetration of its Galaxy family of machines, especially for the Solaris, Meteor and Meteorite new models.
Other re-rating catalysts include Sarine’s Light, Loupe and Profile technologies becoming widely adopted as an industry standard by retailers and gem labs. In addition, the commercial rollout of its e-Gradin offering in the 2HFY2021 should drive higher recurring income and margins.
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On the other hand, the resurgence of the pandemic, which could disrupt the global diamond value chain, economic uncertainties, as well as an infringement of the group’s intellectual property rights have been identified as potential downside risks.
Shares in Sarine closed 2 cents lower or 2.4% down at 80.5 cents on Aug 10, or 2.9 times P/B, according to Maybank Kim Eng’s estimates.
Photo: Stock image
