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Unexpected industry glut impacts Sarine on top of illicit competition

Jeffrey Tan Published on Fri, Nov 24, 2017 / 10:00 AM GMT+8

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(Nov 27): The Straits Times Index has continued to rally this year. It added 0.7% over the period from Nov 14 to 21 to close at 3,423.38 points, extending its year-to-date gains to 18.8%. Since the inception of the Singapore Market Portfolio on Jan 4, the STI has returned 20.8% including dividends. By comparison, our portfolio has returned 15.4%.

The biggest drag on our performance has been gemmological toolmaker Sarine Technologies. The company makes inclusion mapping systems, which help diamond manufacturers decide on the optimal cut for a diamond. Since it was added on April 11, this holding has returned a negative 46.5% including dividends. Based on its Nov 21 close of 94 cents, the stock is trading at 3.5 times its book value.

Sarine is facing a host of challenges. For one, the diamond retail industry experienced a glut of polished diamonds in 3Q2017. An unexpected build-up in supply of these gems led to reduced capital expenditure by diamond manufacturers. That, in turn, led to a decline in the sales of Sarine’s Galaxy family equipment.