Sarin Technologies

Kim Eng on 7 Aug 2012

Within expectations, maintain BUY. 2Q12 results came in within our expectations with revenue of USD18.2m (+16% YoY, -8% QoQ) and net profit of USD6.6m (+31% YoY, -16% QoQ). 1H12 revenue and net profit both made up about 47% of our previous FY12F forecast. Sarin also declared an interim dividend of 1.25 US cents per share. With some headwinds in India, we reduce FY12F net profit forecast by about 9% which resulted in a lower target price of SGD1.66, based on 16x FY12F PER. However, we remain optimistic on its long term growth prospects given the positive developments in new products.

Galaxy deployment on track. Sarin delivered another 14 Galaxy systems in 2Q12, bringing the total installed base of Galaxy systems to 83, well on track to meet its full-year target of 100 installed Galaxy systems. Galaxy-related sales accounted for more than a third of its overall revenue in 1H12 while recurring revenue made up about 20% of total sales for the same period.

Headwinds could dampen 3Q results. A situation of high rough diamond prices and expectation of fall in polished prices have resulted in Indian manufacturers holding out on purchasing of rough stones, and wholesale traders delaying purchase of polished stones. Indian manufacturers also face a liquidity issue and could put off capital equipment spending. These factors could impede Sarin’s business in the short term. However industry players are expected to restock soon in preparation for the coming holiday season given that their inventory levels are low, which would alleviate the current situation. We expect the headwinds to dampen 3Q12 performance but this could dissipate as early as towards the end of 3Q12 resulting in a normalised performance in 4Q12.

Catalysts from new technologies. Sarin would continue to roll-out products for the polished diamond trade, which we believe would fuel its next leap of growth. Sarin remarked that interest and positive feedback for the Sarin LightTM exceeded its expectations. We expect news of any established commercial agreements with major opinion leaders to be a positive trigger for share price.