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3 Key Takeaways from Sarine Technologies Ltd’s Latest Half-Year Earnings

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Sarine Technologies Ltd (SGX: U77), which develops and sells precision technology products for the processing of diamonds and gemstones, released its latest earnings for the first half of 2014 in the wee hours of today.

The company saw its half-year revenue rise 16% year-on-year to a record US$49.1 million. This was on the back of increased sales from both its Galaxy family of products and its offerings for rough diamond planning and processing. With the higher revenue came an 8% increase in profit for the company to US$17.6 million.

Here are three other important highlights about the company’s earnings that investors ought to know.

1. Recurring revenue

Recurring revenue for Sarine in the first half of 2014 was about 35% of its total revenue of US$49.1 million.

The presence of recurring revenue bodes well for a company as customers are “locked into” the firm. Such revenue also often provides a higher profit margin given that there are lesser expenses (such as advertising, research & development, and so on) for each dollar of sales received.

In light of that, Sarine’s investors would be happy to note that recurring revenue has been growing at the firm. According to my colleague Chin Hui Leong, recurring revenue for the whole of 2010 had been just slightly above 10% and had increased to 30% by 2013.

For the rest of 2014, Sarine said recurring revenue from its installed base of Galaxy family systems should continue to grow due to an expanded installed base. The total number of installed Galaxy family systems for the company worldwide stood at 175 as of 30 June 2014, an increase from 140 installed systems at the end of 2013.

2. Dividends

The firm has a dividend policy of paying out US$0.02 per share every half a year (subject to Board approval, AGM approval, and other conditions). For the latest half-year period, shareholders will be rewarded with total dividends of US$0.03 per share (comprising of US$0.02 per share as per the dividend policy and US$0.01 per share of special dividends).

For 2012 and 2013, the firm paid out a total of US$0.045 and US$0.06 per share in dividends, respectively. The dividends paid for 2013 was around 87% of the company’s net profit for that year.

3. Growth drivers

In the third quarter of 2014, Sarine is scheduled to deliver its Galaxy Ultra product to customers. It is the latest addition to the company’s Galaxy family for products, which enables diamond manufacturers to scan rough diamonds for inclusions and map those out. An inclusion is a type of clarity characteristic found within a diamond that’s formed when the stone is first forged underneath the earth’s surface. According to the company, Diamonds without inclusions can be worth up to 10 [times] more.” The new Galaxy Ultra provides inclusion scanning of rough diamonds at microscope-levels of magnification on top of the normal scanning that is available through standard Galaxy systems.

Marketing of Sarine Light, which helps to measure a diamond’s Light performance, will be expanded to Hong Kong, China, Thailand, Malaysia, Indonesia and Singapore over the next 12 months. The product was launched in the American and Taiwanese markets in the second quarter of this year. Management commented that “Extensive marketing of Sarine LightTM in 2014 should follow with significant revenue contribution in 2015 and beyond.”

Another part to Sarine’s future growth is its Sarine Loupe product, an imaging system that captures a polished diamond, including its internal features, in simulated three dimensions. The product has been rolled out in the company’s service centre in India. Deliveries and sales to customers’ sites will commence after Sarine introduces the “enhanced features” of Sarine Loupe at a Hong Kong jewellery trade show in September.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.