Sarine Technologies - Maybank Kim Eng 2016-05-25: The Path to Normalcy

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SARINE TECHNOLOGIES LTD U77.SI 

Sarine Technologies (SARINE SP) - The Path to Normalcy 

De Beers’ Sight 4 stable with USD630m of sales 

• De Beers just concluded its fourth Sight of the year with provisional rough diamond sales of USD630m (Sight 3 2016: USD666m, Sight 3 2015: USD506m). This is one of the short-term data points that we highlighted in our 1Q16 results note. 
• The slight sequential 5.4% dip is not a concern as sales have risen in four consecutive Sights since Nov 2015, where only USD178m of rough was sold. Investors should instead focus on the 25% YoY rise in sales which is encouraging and suggests that the industry’s recovery remains on track. 

US jewellery prices turning up again 

• In the polished diamond space, US CPI for jewellery rose by 1.5% QoQ and 5% YoY after briefly dipping into negative territory in Mar. 
• In our last report, we said that polished demand was mixed but the positive Apr CPI figure has lifted our optimism. We would still watch the JCK Las Vegas trade show (3-6 Jun) to confirm the uptrend in US demand, while the Hong Kong Jewellery & Gem fair (23-26 Jun) will provide a better sense of the Far East market which has been more restrained because of weaker Chinese demand. 

India’s polished exports & rough imports jumped 

• Another set of positive data came from India, where polished diamond exports rose c.9% YoY to USD1.8b in April, while rough diamond imports surged 37% YoY to USD1.9b. 
• In our view, this suggests that manufacturing activity is picking up as inventory is moving with an increase in sales of finished product (polished diamond) and higher intake of raw materials (rough diamonds). 

Normality could be returning, Maintain BUY 

• The series of positive data points support our view that Sarine could be on its path to normalcy in 2016. The data points are encouraging also because Apr-May has traditionally been a quieter period. 
• Maintain BUY and DCF-based TP of SGD1.94 (WACC: 13.3%, g: 2%) for recovery growth in the short-term and the adoption of its technologies in the long-term. 

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-25

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.94 Same 1.94