Sarin Technologies

Kim Eng on 11 Apr 2013

A global market leader. Sarin is the worldwide market leader in precision technology products for diamond and gem processing, with an estimated market share of 75%. Having secured a dominant share of the rough diamond market for manufacturing equipment, the company is moving down the value chain to provide technological solutions for the polished diamond market.

Leading technologies drive future growth. The GalaxyTM is able to automate the mapping of a rough diamond’s inclusions within minutes, a process which hitherto was done manually. Sales of this game-changing technology have been gaining strong traction. A unique business model has also evolved, whereby users pay on a per-use basis. This has, in turn, enhanced Sarin’s recurring income base. The company is also planning to penetrate the polished diamond market with its Light Performance Technology, which could change the way consumers assess a diamond’s qualities.

Attractive for its profitability and monopolistic position. Sarin generates attractive profitability with gross margins in excess of 70% and ROEs in the 40% range. It is also the undisputed leader in its field with complete solutions for every stage of diamond processing from the rough to the polished form. Other than gaining greater penetration for its GalaxyTM machines, Sarin has technologies waiting in the wings to drive the next stage of growth in the polished diamond market.

Founding members may cash out. We believe the founding members of Sarin may want to cash out at the end of the day, given that they have been passive shareholders for a while. Any party who acquires their block of 34% stake may wish to eventually seek control of the company.

Long-term value and growth potential underappreciated. In our blue-sky scenario analysis, we postulated that Sarin could generate annual net profit of USD114m if it succeeds in realising its long-term plans. Applying a conservative 10x PER would imply a market value of USD1.1b. Near term, our target price of SGD1.48 per share is fair, considering the execution risks Sarin may face.