Sarine Technologies

[desmondxyz]

Sarin has 75% market share in this diamond equipment business, zero debt with excessive cash on hands. The business growth in terms of revenue and profit margin has been excellent for the past 5 years. The management also generous enough to give higher equity return to shareholders.... I think this counter is seriously undervalued and I won't be surprise if it shoot up even higher....

Vested.

[l0nEr]

Its currently trading around 16-17x PE... just wondering which multiple do you think it should be trading at (if you say its undervalued)?

[pianist]

yup i am also wondering which multiple shld it be trading?

vested at 0.85

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these days..seems like all prices shoot until quite blurred dunno when to sell, any 'advice'?

[KopiKat]

Looking at FY12 results (in US$),

- Revenue + 10%
- Net profit +20%
- Zero Debts
- Cash 10.74ct / share
- Div = 4.5ct (1.25ct / H + 2ct Special) ; FY13 Guidance 1.5ct / H

Although PE = 16+ does look high, I'm quite happy to hold on to my shares as long as the above story does not change..

The main unpleasant part of the story is their biz is dependent on the state of the economy (end product are mainly equipments targeted at diamond producers) and during recessionary times, the ride can get more 'exciting'...

[Nick]

Sarin Achieves New Heights with Record Performance in FY2012

http://sarin.listedcompany.com/newsroom/...F76A.1.pdf [SGX Announcement]

http://sarin.listedcompany.com/newsroom/...95F6.1.pdf [Press Release]

http://sarin.listedcompany.com/newsroom/...B86C.1.pdf [PPT Slides]

The conference call webcast is available in their IR page.

My Personal Thoughts:

1) I am very pleased with the increased dividend guidance to 3.0 US cents in FY 2013. It speaks volume of their cash generating abilities since they shifted their business model towards pay per use. The dividends paid in FY 2012 amounted to a record high 4.5 US cents (including 2.0 US cents dividend paid in Dec 2012) - and incredibly, the Company net cash has soared to a record high of US$36.8 million with no debt. I would certainly hope that they maintain a 'surprise' dividend in 2013 though they face capex - more service centers, US building and possible M&A (including matured products).

2) The Company has installed 95 Galaxy systems by the end of 2012 and should continue to experience significant growth in recurring income in 2013 as the installed systems contribute to a full year performance and the increased likelihood of more systems being installed around the world including USA (their Gem Tower) and possibly in Asia. The increased proportion of recurring income in the revenue increased its gross margin from 66% to 68%.

Recurring & Maintenance Revenue

2006: $0.6 mil
2007: $1.0 mil
2008: $1.6 mil
2009: $2.8 mil (Galaxy Systems rolled out)
2010: $6.0 mil
2011: $9.0 mil
2012: $15.9 mil

3) The signing of commercial agreement with a major Asian retailer for the use of Sarine Light from 2Q 2013 onwards will further drive recurring income sources in 2014 onwards. It is unlikely it will form a significant revenue source in 2013 (judging by the Galaxy revenue pattern above) as time is needed to gain more customers around the world and in turn, for them to integrate it to their retailing operations. This could be a massive game changer in the future as it will enable Sarin to break into the polished diamond sector.

4) Despite the growing recurring revenue stream and possibly exciting projects under development, a sizable revenue source is still derived from one-off equipment sales. While the competition isn't strong since the market is very niche, it is tied to the very seasonal diamond industry which can lead to fluctuating revenue. Long time investors would remember the poor 1H 2009 results where equipment sales dried up ! Perhaps in the long run, this might be a non issue but currently, with 75% of the FY 2012 revenue derived from this seasonal division, we should be cautious of headwinds in the industry.

5) Sarin share price closed at $1.25 giving rise to PER of 16, dividend yield of 2.7% (assuming 3.0 cents) and numerous multiples of the book value. With numerous growth catalyst and market leadership, I don't think it is expensive but neither is it cheap since growth is priced in and this is a very profitable business judging by the large FCF and ROE exceeding 30%. Let's wait and see how its expansion plan unfold. I consider it as high return and high risk stock (my own view).

(Vested)

[KopiKat]

Maybank-KimEng report from remisiers.org,



Back On Its Diamond Trail

Slightly below expectations, but recovery on track. Sarin reported FY12 revenue and net profit of USD63.8m (+10% YoY) and USD20.8m (+20% YoY) respectively. FY12 net profit came in slightly below our forecast of USD22.1m but we believe that sales recovery is on track to resume to normal levels from 1Q13. Final dividends of 1.25 US cts/sh were declared, bringing total FY12 dividends to 4.5 US cts/sh, with an implied yield of 4.5%. It also raised its dividend policy to 1.5 US cts/sh (from 1.0 US cts/sh) every half-yearly. Reiterate Buy, with TP trimmed to SGD1.48 (pegged to 13x FY13F PER) due to minor cuts of 3-5% on FY13-14F net profits.

Accelerating sales of GalaxyTM. Eight additional GalaxyTM units were deployed in 4Q12. This brings total number of installed units to 95, with 40 sold in the year. This was slightly below the initial 100 targeted for FY12 due mainly to the temporary hiccup in 3Q12. Management expects sales momentum to accelerate into FY13F as demand seems to have picked up with increasingly positive sentiments. We are assuming addition of 45 GalaxyTM units for FY13F.

Strengthening recurring income. Recurring income base accounted for 25% of total revenue in FY12, and we expect this to grow to 31% in FY13F with a higher installed base, bringing more stability to sales.

Further developments in polished diamond sector. Sarine LightTM achieved a significant milestone as it secured an initial commercial agreement with a leading retail chain in Asia. Commercial launch is also expected for Sarine LoupeTM later in the year. We expect to see some contributions in FY13F albeit more significant contributions would only come in from FY14F.

Cautious optimism ahead, creating structural change. A more stable global economy and growing demand for luxury goods in China and India will provide the impetus to support Sarin’s business. The recent 10% fall in rough diamond prices and stability in polished diamond prices, would also ease the liquidity issues faced by manufacturers. However, be reminded that investing in Sarin is about its potential to create a structural change in the diamond industry with its new technologies. Maintain Buy.

[Nick]

Management has sold 2.0 million treasury shares @ $1.30 to raise $2.60 million on 22 Feb 2013 'to help address market liquidity'.

http://info.sgx.com/webcoranncatth.nsf/V...C004614B0/$file/Sale_of_Treasury_Shares.pdf?openelement [SGX Announcement]

(Vested)

[CityFarmer]

Management has sold 2.0 million treasury shares @ $1.30 to raise $2.60 million on 22 Feb 2013 'to help address market liquidity'.

http://info.sgx.com/webcoranncatth.nsf/V...C004614B0/$file/Sale_of_Treasury_Shares.pdf?openelement [SGX Announcement]

(Vested)

It is reverse of share buy-back. If share buy-back generally means shares are under-valued, then sale of treasury shares means shares are over-valued?

(not vested)

[smallcaps]

Management has sold 2.0 million treasury shares @ $1.30 to raise $2.60 million on 22 Feb 2013 'to help address market liquidity'.

http://info.sgx.com/webcoranncatth.nsf/V...C004614B0/$file/Sale_of_Treasury_Shares.pdf?openelement [SGX Announcement]

(Vested)

It is reverse of share buy-back. If share buy-back generally means shares are under-valued, then sale of treasury shares means shares are over-valued?

(not vested)

If a company sells shares, it might mean it needs the money.

[CityFarmer]

Management has sold 2.0 million treasury shares @ $1.30 to raise $2.60 million on 22 Feb 2013 'to help address market liquidity'.

http://info.sgx.com/webcoranncatth.nsf/V...C004614B0/$file/Sale_of_Treasury_Shares.pdf?openelement [SGX Announcement]

(Vested)

It is reverse of share buy-back. If share buy-back generally means shares are under-valued, then sale of treasury shares means shares are over-valued?

(not vested)

If a company sells shares, it might mean it needs the money.

Yes, but not for Sarin Tech, which has more than 50% of total asset in cash and short-term investment, and little debt.