Sarin Technologies

Kim Eng on 5 March 2012


First-hand insights. Sarin’s chairman, chief executive officer and chief financial officer were in town last week to provide clients with a first-hand insight into their company. The trio’s sharing at the lunch-time briefing brimmed with the latest on product development and how the company is preparing to penetrate the polished diamond market with two new products, the D-Light and the D-Loupe, as part of its next phase of growth. Reiterate Buy and target price of S$1.71.

A billion-dollar company in the making. We envision what Sarin’s net profit figure will look like when it achieves what it sets out to do. Based on our blue-sky scenario, Sarin can potentially generate net profit of US$114m pa in the future and become a US$1.4b market cap company.

GalaxyTM value propositions proven once again. Management convincingly demonstrated the value proposition of the Galaxy machine both from an economic perspective and the time-effectiveness of using it. In our view, it is only a matter of time before the Galaxy becomes a widely adopted technology and the standard in the diamond industry value chain. Management also expressed confidence in achieving its target deployment of 100 Galaxy machines by year-end.

Two new key products. Sarin plans to formally launch the D-Light and the D-Loupe in 2H12. These two new products are slated to become the next key growth drivers for the company. We estimate the annual revenue potential for each product at about US$40m with annual net profit potential of about US$29m each in the future.

Liquidity may be freed up. Sarin R&D, owned by the original founders of the group, is the biggest shareholder of the company. We understand that most of founders are past retirement age and no longer actively involved in the management of the company. Should this group decide to cash out, it would free up some liquidity for the company.

Reiterate Buy and TP of S$1.71. We are more convinced than before and maintain our forecasts and target price of S$1.71, which is pegged at 16x FY12F PER.