SINGAPORE (Feb 28): CIMB is cutting Sarine Technologies to “hold” as it awaits better earnings contribution from the polished diamond business.
In 4Q16, its Sarine Profile system secured new customers. In 3Q17, Sarine plans to launch a new technology to certify the clarity and colour of diamonds.
In FY16, Sarine Profile and its various components accounted for 2% of group revenue. The company aims to bring this contribution up to 5% of revenue for FY17.
As the group heads into FY17, analyst William Tng says the external environment in good conditions.
“There are no known significant negatives that could impair profitability throughout the diamond industry value chain. There are also no known polished diamond inventory issues as of now,” says Tng in a Tuesday report.
However, there is an intellectual property right violation in India. Although there is no revenue loss from this, Sarine will be taking legal actions to protect its rights.
“As of now, we do not expect significant legal costs,” adds Tng.
To recap, FY16 core earnings came 8% above expectations of its forecast.
A record 84 units of the Galaxy family systems were delivered in 4Q16. This brings the installed base of the Galaxy family of systems to 299 as at end-Dec 16.
A final DPS of 2 US cents and a special DPS of 0.5 US cent were also declared.
The company did not experience any negative effects from India’s demonetisation programme last year.
In FY16, the company generated US$22.1 million ($31 million) in cash from operations and free cashflow of US$17.9 million. Cash and short-term investments made up 56.1% of its current assets in FY16.
As at end Dec, the group has a positive net cash position of US$38 million with zero bank borrowings.
Shares of Sarine are down 1 cent to $1.89.
