Sarine Tech

Sarine Tech - Sarine Technologies has issued a negative profit guidance for its upcoming 1Q15 results, which was lower than street expectations.

Accordingly, the group expects:
- Total revenue for 1Q15 to be about 50% lower y/y.
- Recurring revenue expected to be down 20% y/y as smaller stones were processed
- Expect breakeven profit, but EBITDA and cashflow should be positive.

The key developments that have contributed to this weak performance are:
- Higher rough versus polished prices have impeded players from replenishing stocks of rough diamond as they hold out for further price adjustments. 30% of rough diamonds were not taken up in DeBeers' March sight.
- On-going difficulties for second and third tier players in securing extended working capital credit lines.

In a recent non-deal roadshow hosted by Maybank-KE, management expressed cautious optimism that Jan ‘15 could be the trough, and while Sarine expects current conditions to linger for a few more months, it remains confident in the long-term adoption of its products.

Overall, Maybank-KE expects initial negative share price reaction when the market opens, but opines that this is a short-term industry blip that is not structural in nature. Therefore it should not alter the fundamental growth of Sarine which is anchored upon game-changing technologies that the industry eventually has to adopt.

Sarine will host a conference call today at 2.30pm. The house will have more updates following the call.