Sarine kept at 'add' by CGS-CIMB on IP protection progress, continued growth

Sarine kept at 'add' by CGS-CIMB on IP protection progress, continued growth

By: 
PC Lee
15/05/18, 04:36 pm

SINGAPORE (May 15): CGS-CIMB Securities expects equipment sales at Sarine Technologies to continue rising, helping the company stay on the recovery course.

1Q18 net profit expanded 27% y-o-y to US$3.1 million ($4.1 million) on the back of a 2.4% revenue growth which came in line with CGS-CIMB’s expectations.

See: Sarine reports 27% rise in 1Q18 earnings to US$3.1 mil

The topline increase was underpinned by sales of 12 inclusion-mapping systems in 1Q18 as well as higher Galaxy-linked recurring revenue generated from the number of rough diamond stones scanned.

EBITDA margin improved by 1.3 percentage points to 26.8% on lower R&D expenses, offset by higher third-party professional fees related to IP protection activities in India and the US.

Although De Beers, arguably the world's leading diamond company, in April announced 2-3% increases in rough diamond prices, Sarine’s management says this price hike is unlikely to dampen recovery in midstream manufacturing activities as the increase is deemed in line with De Beers’ stated policy for 2018.

This has led to a quarterly increase in recurring revenue of US$7.5 million in 1Q18, compared to US$6.8 million and US$6.9 million in 1Q17 and 4Q17 respectively. The group anticipates robust midstream activities ahead on stabilised polished inventories level.

Management says illicit competition, though still present, has been curtailed significantly amid ongoing lawsuits in India, IP enforcement in the US downstream market and progressive migration of existing customer base to the latest Advisor 7.0 software version running on its inclusion mapping systems.

To date, over 12,000 installations of its 20,000 over installed systems have migrated to the latest version.

Looking ahead, Sarine is on schedule to open its second gem lab in India by the end of May. Its gem lab employs its latest AI-based 4C diamond grading solutions that saw significant interest in the recent diamond trade shows held this year.

K-Uno, a Japanese jewellery retailer, has announced its adoption of Sarine’s 4C grading reports in mid-April.

“We maintain our ‘add’ call with an unchanged target price of $1.53, pegged to 17.2 times FY19 earnings which represents a 10% discount to its historical nine-year average P/E,” says analyst Colin Tan in a Monday report.

As at 4.34pm, shares in Sarine are up 1 cent at $1.04

 

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