Sarine Technologies
09-01-2019, 10:08 PM
I am vested, but in big loss.
Don't think current dividend is sustainable. But feel maybe abit undervalued now. https://writingofinvestingnoob.com/2019/...rine-tech/ 
14-01-2019, 08:29 PM
As a company, Sarine has produced a record of profitability, maintained high dividend pay outs, holds a substantial amount of cash, and consistently finances its operations and expansion without the use of loans. It does this through focus on constant development of better (and more) products for its (potential) customers, with the aim of ensuring customer satisfaction. Indeed, these are some of the qualities that investors often cite as reasons to invest in Sarine.
Prospectors who compared the current share price of Sarine against the past 1, 2 or 3 years may reason that now is a good time to buy, since it has fallen so much. Likely, reasons such as those mentioned above will be cited to support the view. But those reasons may only remain valid if Sarine continues to thrive in the diamond industry. And it seems that the diamond industry is on the precipice of big changes. Patsy of the Diamond Supply Chain It is understood that Sarine serves the diamond manufacturers. But between the miners, manufacturers, and retailers, which is the most lucrative business in the diamond supply chain? Let’s take a look at the various metrics of three companies; Lucara Diamond (miner), Asian Star (processor), and Tiffany & Co (retailer). a) ROA & NPM Return on Asset (%) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Lucara Diamond -10.7 -7.7 -3.2 26.3 14.4 22.6 23.4 17.8 Asian Star 3.1 2.6 2.1 2.4 2.7 2.6 2.2 2.4 Tiffany & Co 10.5 8.9 3.8 9.3 9.0 3.8 8.7 6.7 Net Profit Margin (%) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Lucara Diamond 0 0 -17.9 36.1 17.2 34.7 23.9 29.5 Asian Star 2.1 1.7 1.7 1.7 1.7 1.9 1.7 1.6 Tiffany & Co 11.9 12.0 10.9 4.4 11.3 11.2 11.1 8.8 Lucara Diamond is a Canadian miner who owns the Karowe mine in Botswana, Africa. Its negative returns from FY10 to FY12 were due to start-up costs. Production only began in FY12, and went into full swing from FY13. Asian Star is a cutter and polisher in Surat, India, and was a public company since 1995. Tiffany & Co needs no introduction. The two tables above should illustrate quite clearly the pecking order of the diamond supply chain; diamond processors have no/little ability to lower rough diamond cost, and raise polished diamond prices. Since Sarine is selling its products and services to only diamond processors, Sarine’s fortunes are very sensitive to the financial strength of these processors; bad times for diamond processors means Sarine can expect the same. And since its diamond processors earn tiny margins and low returns, it will be difficult for Sarine to further increase the selling price of its products and services. b) FCF/Profit and Dividend payout ratio Total FCF, FY10-FY17 Total Profit, FY10-FY17 FCF/Profit Lucara Diamond US$163m US$282m 58% Asian Star Rs350m Rs2,863m 12% Tiffany & Co US$1,842m US$3,167m 58% Total Div, FY10-FY17 Total Profit, FY10-FY17 Payout Ratio Lucara Diamond US$217m US$282m 77% Asian Star Rs171m Rs2,863m 6% Tiffany & Co US$1,444m US$3,167m 45% Looking at their level of free cash flow, profit, and dividends, Asian Star is again at the bottom with very low FCF/Profit and dividend payout ratio. Its low payout ratio is due to the need to conserve cash to expand working capital, and its low FCF/Profit is due to growing receivables (as a result of more business) and capacity expansion. So liquidity is tight for diamond processors. So far, Sarine has not had any major issue with receivables collection, though it is taking longer than before. Sarine Tech FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Revenue (million USD) 45.6 57.8 63.7 76.3 87.7 48.5 72.5 58.6 Receivables (million USD) 3.1 6.6 7.3 15.8 13.4 11.3 16.9 17.2 Turnover (in months) 0.8 1.4 1.4 2.5 1.8 2.8 2.8 3.5 c) Liabilities to Assets LTA (%) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Lucara Diamond 5.5 29.4 33.1 17.9 27.9 25.4 33.7 29.8 Asian Star 75.8 75.0 68.4 71.8 68.6 70.1 65.4 65.1 Tiffany & Co 41.7 43.5 43.8 42.7 45.2 43.2 40.1 40.8 The story is still the same when looking at their capital structure. Because of the tiny margins, and hence low returns, diamond processors have to use plenty of credit to juice up its returns. Otherwise, the Indian investor would be better off buying Indian government securities yielding 7% to 8%. So Sarine’s customers – especially the smaller ones – have a higher credit risk. But in spite of all its poor financial metrics – low ROA, low NPM, low FCF, high leverage – these diamond processors are unlikely to fold so long as global demand for natural retail diamonds remain intact. Nevertheless, the poor economics of diamond processing in India – where about 90% of the world’s diamonds are cut and polished – means diamond processors has to constantly look for ways to reduce cost. These become pronounced when revenue takes a hit, as it has over the recent years. The better-known casualty is Sarine, whose software was pirated by some of its customers, and whose receivables are taking longer to collect. The lesser-known casualty are the diamond cutters and polishers. …27 year-old diamond polisher Ritesh Lad had ended his life by drinking poison in Punagam area. Lad’s salary had drastically decreased as the unit owner had slashed the wages due to low output. The very next day, a small diamond unit owner Vijay Dungarani too consumed poison on the way home from Vastadevdi Road. Sources in Surat Diamond Association said that he was extremely worried about making payments to his staff as the work had decreased due to slack demand. https://www.reuters.com/article/us-india...SKBN1K000M https://timesofindia.indiatimes.com/city...122042.cms If the poor economics of diamond processing is the only concern of Sarine – where a few bad years of global demand for diamond hurts Sarine’s bottom line – then Sarine investors need not worry; a few bad years is acceptable, so long as global demand for diamond continue to be on a stable increasing trend. If this is the case, then Sarine’s shares are probably selling at a bargain price right now. So the important question is: What will the future demand for diamonds be? Is it rising, plateauing, or falling? Foundations of the Diamond Industry The diamond production industry emphasizes on increasing yield, and quality assessment. These emphases are not unique to the diamond industry, but are particularly important to Sarine. Increasing the yield that a processor can get from rough diamonds is important because rough diamonds are expensive, and when polished, command even higher retail prices. To ensure a processor is able to maximise the realisable value of the rough diamonds they bought, there is a need to optimise each rough diamond’s cut, carat, and clarity. Sarine fulfils this need with its scanning, planning, inclusion mapping, and laser sawing tools. The accurate and objective assessment of a diamond’s quality (4Cs) is important because of, again, the high prices that retail customers are paying. Apart from brand, customers need (lab certification) to be convinced of the high prices that they are paying. And it is only because of high prices that quality assessment of each diamond is economically sensible. Diamonds are probably one of the few consumer products whose quality are individually assessed. And Sarine, again, fulfils this need with its hardware and software. With the increase in production of synthetic diamonds, Sarine has also developed the ability to differentiate natural and synthetic diamonds. Without high prices, it may not make economic sense to utilise Sarine’s best-in-class products to increase yield, and it may not be necessary to utilise Sarine’s best-in-class products to assess a diamond’s quality. After all, diamond cutting and grading was traditionally performed without any laser, or computer aids. Lightbox – De Beer's synthetic diamond retailer – does not provide grading certificates of its synthetic diamonds; perhaps making a point of how unworthy they are? As most would know by now, the high retail prices of diamonds were a result of the public’s perception that diamonds are rare, valuable, and together with its physical properties, an ideal proposal gift. These perceptions were a result of controlled rough diamond supply, and clever consumer marketing. And they are important because they are the foundations of the entire diamond supply chain. However, these foundations are under attack by the emergence of large-scale manufacturing of high-quality 'synthetic' diamonds. Attacking those Foundations The only difference between a grown synthetic diamond and a mined diamond is simply that; its source. To the consumers who are not particular about the source of their diamond, they now have much cheaper options. And as the technology for producing synthetic diamond improves, the costs to produce them, and their retail price, will likely fall. There will be customers seeking to purchase cheaper-but-just-as-beautiful diamonds. Since a synthetic diamond is indistinguishable from one that is mined, the consumer need not worry about the embarrassment caused from being called out for wearing a ‘fake.’ But how much of such customers are there? Morgan Stanley estimates that synthetics could take 15% of the melee (<0.2ct) market by 2020. If this was all there is to it, then the natural diamond supply chain parties can breathe easy; losing 15% is not a lot, and they could recover as the market size continues to grow. But the bigger worry is that the market size may not continue to grow, or worse, shrink. Growing diamonds in a lab attacks the foundations of mined-diamonds. When synthetic manufacturers increase their production and lower their costs, diamonds will no longer be rare. Instead of taking millions of years to form, they will now only take days to weeks. And because they can be mass-produced, and at lower costs, they will also no longer be valuable. When diamonds are no longer considered rare or valuable, will they still be the gift of choice for proposals? If demand for diamonds are substantially reduced, all parties in the natural diamond supply chain will be hurt badly. The tables below shows the revenue of Chow Tai Fook and Tiffany & Co. For CTF, even though the number of point-of-sales grew over the past 7 years, the revenues from jewellery did not follow the same trend. For Tiffany, revenues did not grow meaningfully as well. Chow Tai Fook FY12 FY13 FY14 FY15 FY16 FY17 FY18 Jewellery Revenue 15.3 13.1 16.3 17.3 15.4 12.8 13.7 (in billion HKD) Jewellery POS 1.4 1.6 1.8 1.9 2.0 2.2 2.4 (in thousand) Total Revenue 56.5 57.4 77.4 64.2 56.5 50.8 57.8 (in billion HKD) Tiffany & Co FY11 FY12 FY13 FY14 FY15 FY16 FY17 Revenue 3.6 3.8 4.0 4.2 4.1 4.0 4.1 (in billion USD) Presently, the production of synthetic diamonds is estimated at 2 million carats a year. This is tiny compared to about 150 million carats of natural rough diamonds produced each year. So it is unlikely that the revenue figures of CTF and Tiffany were strongly influenced by the emergence of synthetics. As production of synthetics increase, its effect on natural diamond will become clearer. A Future for Sarine? Some may raise the point that synthetic diamonds still require the cutting and polishing. This is true. But whether Sarine will benefit from an increase in synthetics depends on two points. The first is whether the entrance of synthetics may cause the collapse in demand for diamonds, as mentioned above. The second is whether Sarine is actively courting synthetic manufacturers, or the processors that work for these manufacturers. On the second point, Sarine’s competitor, OGI Systems, appears to be more active in its pursuit of business from diamond growers; OGI’s website offers products that are specific to diamond growers. Though these products may be the same or similar to those used on natural roughs, it shows OGI’s willingness to work with growers. Sarine, on the other hand, does not seem to be making such initiatives. Instead, it seems more aligned to the natural diamond parties, having sold its products to the major gem labs, and developed products to differentiate between a grown and mined diamond. The future narrative of the diamond industry is not clear. And this make it difficult to value Sarine. But given the circumstances, and erring on the side of caution, Sarine appears fairly valued to me. References https://www.bain.com/insights/global-dia...port-2018/ https://beta.scmp.com/lifestyle/fashion-...nal-market https://www.forbes.com/sites/pamdanziger...c32073f529 https://www.nytimes.com/2018/02/09/your-money/synthetic-diamond-jewelry.html
16-01-2019, 03:42 PM
thanks a lot for putting it altogether like this. thinking v hard whether to get in in now amidst all the uncertainty. the last time it traded at this level was 2011-2012 where its revenue is about what it is now. but its earnings then was roughly double what it is today, so i think it's btwn fairly to over valued.
16-01-2019, 07:43 PM
If you really like it, and you're sure of it, then go big with it.
If you really like it, but you're not so sure about it, then make a smaller wager. Or just look elsewhere. There are many other securities to consider too. The situation isn't going to change in the short-term; it will take a few years to see the effect of synthetic diamonds (if any) on the industry.
26-01-2019, 01:42 PM
Perhaps there are some parallels between diamonds and pearls, for both were rare, highly desired, and priced. If so, there may be some lessons for stakeholders of the diamond industry.
Until the early 1900's, natural pearls were accessible only to the rich and famous. In 1916, famed French jeweler Jacques Cartier bought his landmark store on New York's famous Fifth Avenue -- by trading two pearl necklaces for the valuable property. But today, with the advent of pearl cultivation, pearls are available and affordable to all. https://www.americanpearl.com/history.html The eventual, halting revival of taste for pearls took an unexpected form. While the earlier fashion had been for gently graduating strings of pearls, in the 1990s “big South Sea cultured pearls” were desirable, says Mr Warren of Christie’s. This resulted in the “ridiculous scenario” where a large South Sea or black Tahitian cultured pearl necklace would sell for £150,000 while a natural pearl one — much rarer — would sell for £15,000. “A natural pearl is not man-made, they are freaks of nature, and there aren’t a lot out there,” he says. https://www.ft.com/content/71bf7030-1954...d2cb31823a On the durability of demand for diamonds, the emergence and popularity of alternate gifts for marriage proposals would probably be the key trend to look out for. Even if a decrease in use of diamonds for marriage proposals were to occur, there will probably still be a market for diamonds; especially the larger, flawless, natural ones. But like the market for pearls, it could be more niche than mass market.
28-01-2019, 07:33 PM
read thru a bain report (link below) and here are some thoughts. all rearview mirror interpretation...
1) luxury market is growing/has been growing healthily (certainly doesnt equate to diamond market growing). jewelry segment is doing better than overall market (likewise, jewelry =/= diamond). "overall luxury market grew by 5% in 2017" "Shoes, jewelry and handbags ranked as the three fastest-growing product categories, increasing by 10%, 10% and 7%" 2) CHINA. just, wow. better pray they dont sneeze. "the share of personal luxury goods purchased by Chinese nationals reached 32% in 2017" 3) "millennialization" of luxury customers. i think of it as a tastes vs habits situation. while their preference for luxury can stay the same, how they consume and access it would shift significantly from offline to online. retailers need to adapt their touch points and co. like sarine will need to support them in doing so (e.g. sarine profile). "changing the purchasing habits of all generations" "relentless march toward e-commerce continued, with online sales jumping by 24% in 2017, reaching an overall market share of 9% .......online sales of personal luxury goods will make up 25% of the market by 2025" "Brands are finally starting to be proactive about making their mark in this channel by establishing their own websites, which now account for 31% of sales" https://www.bain.com/insights/luxury-goo...inter-2017
31-01-2019, 03:45 PM
(16-01-2019, 07:43 PM)karlmarx Wrote: If you really like it, and you're sure of it, then go big with it. couldnt resist and took a bite today. let's see!
04-02-2019, 11:03 AM
Karlmarx, I am personally enjoying your research and thoughts on the diamond industry, especially taking a look at the diamond supply chain and a comparison to pearls.
Looks to me that this is what that is happening. The demand of diamonds is decreasing at a pace that the supply of diamond processors like Asian Star is substantially more than the diamonds to be processed. The squeeze on Sarine's customer is evident in Sarine's sales and receivable turnover. Investing in Sarine would be a bet on a growing or even sustaining consumer appetite for natural diamonds. Then the key question is, would that be the case?
The fact that Sarine is the market leader in producing cutting and polishing tools, and had a good record of producing good profits and dividends is why it continues to draw the attention of prospectors, including myself. Without these redeeming factors, Sarine's present price may be far lower than what is it is.
Could Sarine at present prices be a 'perfect pitch?' Looking at its price and past glories, it could be. But for reasons I have shared, it is not a perfect pitch to me. The risk of lower diamond demand is not low, and the impact of which will be devastating on Sarine. If the market makes a more attractive offer of Sarine shares, I may reconsider. If not, then its ok, just continue to look elsewhere. I believe this is the so-called patience that's frequently bandied about by investors; not just in waiting for your investment to work out, but also waiting for the 'perfect pitch.'
02-03-2019, 12:33 PM
(02-03-2019, 12:03 PM)Davidtiah Good analysis Karl. I searched high and low to find out the reasons why Sarine share price keeps coming down. At fri closed of 39c, the selling pressure is still strong. The fundamentals are still good and most analyst reports positive. The technicals are grossly oversold. I read a report that insiders are selling and for them to do so at this price, I suspect the reason must be "structural?" Thank you for providing me with a possible explanation. I guess I will just wait and see having accumulate some at AC44c karlmarx Wrote: [quote pid='150959' dateline='1547468946'] [/quote] |
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