11 August 2014

Sarine Technology Quarterly Report Summary - August 2014

Half Year 2014 Performance Review

Revenue increased 15.9% to US$49 million, with net earnings increased 8% to US$17.6 million, partly due to 44% increase in R&D expenses, 14.5% increase in sales & marketing expenses and 20.5% increase in general and administration expenses offset by increase of 188% in net financial income. 

The revenue derived from different region: India 81%, Israel 6%, Africa 4%, Europe 2%, North America 1% and the rest from other region. Galaxy family related revenues remain the biggest contributor to the total revenue. 

Total Equity improved to US$80 million compared to US$67 million half year ago. Total liabilities remained stable at US$ 16 million which translated to a healthy total liabilities to total asset ratio of 16%. 

Net cash from operating was US$22 million, offset by cash used in investing US$ 15 million (US$ 12 million used in short term investment) and dividend paid US$ 6.3 million. 

Total diluted EPS for half year 2014 was 6.26 SG cents, with NAV valued at 28.74 SG cents, which translated to a very good expected annualized ROE of 40% - 50%. High ROE means that the company could generate net profit with little shareholder fund, with one of the reasons that the non-current assets to total asset ratio could be lesser than 0.5. With PE of 24 X, I would say the current market already take into account the growth factor of Sarine Technology for next couple of years. So if you really like to invest in this counter, please be ready to hold for the next few years. 

Company Comment on Near Term Outlook
  1. Global economic remains stable, same with Indian Rupee against U.S. Dollar. 
  2. Polished diamond price stablized, with moderate price increase in rough diamond market. 
  3. Record deliveries of new Galaxy systems to customers - 19 systems, majority of which were Solaris model. The group expected strong demand of Galaxy and Solaris system this year. Sales of Galaxy Ultra have commenced as planned in Q3 2014. 
  4. Marketing efforts of Solaris Light in the U.S., Japan, Korea and Taiwan are continuing. The group hope to diversify the customer base in East Asia and South East Asia region by year 2015.
  5. Sarine Loupe imaging services launched commercially in India as of July 2014. 

My Notes

Sarine Technology is one of my favorite counters in retail sector although it may focus on R&D in order to produce better products for its customers in diamond industry. As it is diversifying its products and services as well as customer base, I believe there is still ample room for the group to grow to another level. It may take few more years to realize it strategy to grow in Asian region (other than India). Investors have to be more patient in waiting net profits and revenue to increase in future. 

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