Slightly below expectations, but recovery on track. Sarin reported FY12 revenue and net profit of USD63.8m (+10% YoY) and USD20.8m (+20% YoY) respectively. FY12 net profit came in slightly below our forecast of USD22.1m but we believe that sales recovery is on track to resume to normal levels from 1Q13. Final dividends of 1.25 US cts/sh were declared, bringing total FY12 dividends to 4.5 US cts/sh, with an implied yield of 4.5%. It also raised its dividend policy to 1.5 US cts/sh (from 1.0 US cts/sh) every half-yearly. Reiterate Buy, with TP trimmed to SGD1.48 (pegged to 13x FY13F PER) due to minor cuts of 3-5% on FY13-14F net profits.

Accelerating sales of GalaxyTM. Eight additional GalaxyTM units were deployed in 4Q12. This brings total number of installed units to 95, with 40 sold in the year. This was slightly below the initial 100 targeted for FY12 due mainly to the temporary hiccup in 3Q12. Management expects sales momentum to accelerate into FY13F as demand seems to have picked up with increasingly positive sentiments. We are assuming addition of 45 GalaxyTM units for FY13F.

Strengthening recurring income. Recurring income base accounted for 25% of total revenue in FY12, and we expect this to grow to 31% in FY13F with a higher installed base, bringing more stability to sales. Further developments in polished diamond sector. Sarine LightTM achieved a significant milestone as it secured an initial commercial agreement with a leading retail chain in Asia. Commercial launch is also expected for Sarine LoupeTM later in the year. We expect to see some contributions in FY13F albeit more significant contributions would only come in from FY14F.

Cautious optimism ahead, creating structural change. A more stable global economy and growing demand for luxury goods in China and India will provide the impetus to support Sarin’s business. The recent 10% fall in rough diamond prices and stability in polished diamond prices, would also ease the liquidity issues faced by manufacturers. However, be reminded that investing in Sarin is about its potential to create a structural change in the diamond industry with its new technologies. Maintain Buy.

Source: Maybank Kim Eng Research - 19 Feb 2013