Sarine Technologies

Sarine Technologies: 3Q14 results slightly ahead of estimates, as net profit spiked 85% y/y to US$5.7m, on revenue surge of 17% to US$20.4m, attributed to improved business sentiment, higher Galaxy-related recurring revenue from a broader installed base and increased sales of traditional planning and rough-diamond processing products. This brought 9M14 earnings to US$23.3m (+20%) and revenue to US$69.5m (+16%), 76% and 77%, respectively, of consensus estimates. Gross profit margin declined slightly from 73% to 70% due to changes in product mix. Sequentially (q/q), the drop in sales (-18%) was dragged by India, as lower working capital credit lines available to some of its customers and the cyclical slowdown ahead of Diwali impacted operations. Subsequently, earnings fell 34%. Sarine's Galaxy family system (35% of overall sales) continues to grow with the delivery of seven this quarter, raising installed base to 185. This rose from 140 systems as at end-2013 (30% of overall sales). Management is confident of deepening market penetration of its Galaxy-family of diamond inclusion mapping systems, given the lack of meaningful competition. The group intends to seek a significant new market segment- the wholesale and retail trade of polished diamonds, through new products such as Sarine Light and Sarine Loupe. This is expected to add to recurring revenue base more significantly in 2015. At $3.10, Sarine trades at 27x forward P/E, compared to its 3-year historical average of 15.8x.