• Sarine Technologies (SGX:U77)'s 1H21 PAT exceeded our and street’s full year estimates, surging by 972.4% y-o-y to US$12.6m. This was driven by the recovery of manufacturing activities amid robust demand for diamond jewellery after the reopening of retail activities in key global markets.
• In line with the strong earnings, Sarine Technologies has declared an interim dividend of US$0.015, comprising a US$0.01 and US$0.005 special dividend.
• We roll forward our valuation to FY22E, and raised our DCF-based target price for Sarine Technologies to S$0.94 (LTG:3%, COE: 8.6%). Maintain BUY.

Buoyant Industry Conditions Drive Topline Growth

• Sarine Technologies's revenue jumped 60.5% y-o-y to US$36m due to higher capital equipment sales (12/36 Galaxy® family systems were delivered in 1Q/2Q21) and > 80% increase in recurring revenues from Galaxy® inclusion scanning. Its new business comprising rough & polished diamond wholesale and retail related revenues was just < 6% of turnover but we expect this segment to continue growing with broader commercial adoption.
• Total recurrent revenues now account for ~40% of Sarine Technologies’s topline, as compared to 35% a year ago.

Raises Earnings Forecasts on Better Operating Leverage

• Sarine Technologies's gross profit margin expanded 12.2ppt earnings per share forecasts for Sarine Technologies by 57%/36%/22%.

E-Grading on Track to Roll Out by End-2021

• According to Sarine Technologies's management, the in-lab implementation of its AI-based grading paradigm is the end of 2021.

Source: Maybank Kim Eng Research - 5 Aug 2021