SARINE TECHNOLOGIES LTD
U77.SI
Sarine Technologies - Write-off year, look to 2016
- 3Q15 EBIT loss of USD0.7m was narrower than the USD1.5m guided in its profit warning. FY15E still a write-off year.
- 4Q15 outlook muted. But progressing well on new product introductions and launches.
- Maintain HOLD and SGD1.29 TP. Long-term DCF fair value still at SGD2.54. Awaiting more concrete signs of recovery from 1Q16 for re-rating.
What’s New
- 3Q15 was a net loss of USD1.4m (-125% YoY, -154% QoQ). EBIT loss of USD0.7m was less than the USD1.5m loss guided in its profit warning on 1 Oct 15. We believe this was due to lower SG&A.
- The poor results were attributed to:
- rough-polished diamond price mismatch;
- high polished inventory; and
- squeezed working capital of manufacturers, all of which led to weaker capital equipment purchases.
- Only one Galaxy machine was sold in 3Q15 (2Q15: 6, 3Q14: 7) and total installed base is now at 202.
- About half of its revenue was recurring in nature.
What’s Our View
- We expect manufacturing activities to remain suppressed in 4Q15, given the Diwali holidays and DeBeers preferring to defer sales than drop prices.
- Sarine said there are signs of inventory being cleared with industry credit exposure having shrunk by ~USD5b in 2015.
- Peak buying seasons during Christmas, Chinese New Year and Valentine’s Day may also help to spur demand, setting the stage for a likely normalisation from 2016.
- Sarine continues to market its new polished diamond products, which it says are progressing well. FY15E is a write-off year.
- We still believe in the eventual adoption of Sarine’s technologies and have an unchanged DCF fair value of SGD2.54. But near-term wise, the stock price may drift towards its last low of SGD1.29 because of low liquidity and lack of near-term catalysts.
- Marginal 1% change in FY15 EPS. Maintain HOLD and await clearer signs of turnaround, earliest in 1Q16, before we rerate the stock.
Yeak Chee Keong CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2015-11-11
Maybank Kim Eng
SGX Stock
Analyst Report
1.29
Same
1.29
