Sarine Technologies

Sarine Technologies: (S$2.88) 4Q14 below estimates; recurring base increasing
Sarine's 4Q14 net profit slightly below estimates, on lower gross margins and higher sales and marketing expenses.

For the quarter, revenue gained 10% y/y (-10% q/q) to US$18.3m, due to increased sales in recently-released traditional diamond manufacturing equipment (Quazer 3), as well as higher recurring income from a larger installed base of Galaxy-family related products.

Sequentially, the weaker sales was due to credit issues hitting its India customers and the operational slowdown from the Diwali holiday.

Meanwhile, gross margin slipped 4.5ppts (3.3ppts q/q) to 66.6% on a change in product composition.

Together with higher sales and marketing expenses (+11%) from the launch of Sarine Loupe and establishment of selling infrastructure for the new polished diamond offerings, increased finance expenses and higher taxes (+13%) in Israel, earnings dropped 13% y/y (-32% q/q) to US$3.9m.

This brought FY14 earnings to $27.2m (+14%) and revenue to US$87.8m (+15%), vs estimates of US$28.8m and US$88.9m, respectively.

For the year, Sarine delivered a record 48 Galaxy family systems (FY13: 46), increasing the total installed base to 190 and contributing to the higher recurring income of 35% (from 30%) in overall revenue.

Final DPS of 2¢ declared, bringing FY14 total DPS to US5¢.

For the second consecutive year, management has proposed to raise the semi-annual dividend payout- this time by 25% to US2.5¢ (FY13: +33%).

At $2.88, Sarine is valued at 20.8x forward P/E and 8.1x P/B, supported with an indicative dividend yield of 2.4%.