Sarine Technologies Ltd’s Latest Earnings: A Strong Recovery Seen

Sarine Technologies Ltd (SGX: U77) reported its fiscal first-quarter earnings yesterday. The reporting period was for 1 January 2016 to 31 March 2016.

Sarine Technologies sees itself as the worldwide leader in precision technology products for the planning, processing, evaluation, and measurement of diamonds and gems. You can read more about the company in here and catch up with the results from its previous quarter here.

Financial highlights

The following’s a quick rundown on some of Sarine Technologies’ latest financial figures:

  1. For the first-quarter of 2016, Sarine Technologies’ revenue was US$15.5 million, up 27% year-on-year.
  2. Net profit for the reporting period soared 240%, ending at close to US$3 million. Higher gross profit coupled with lower expenses helped lift the company’s profit.
  3. Consequently, Sarine Technologies’ earnings per share (EPS) was S$0.0115 for the first-quarter of 2016, up by 238% from the $0.0034 recorded a year ago.
  4. In the reporting quarter, cash flow from operations came in at US$4.0 million with capital expenditure clocking in at US$655,000. This gives Sarine Technologies positive free cash flow of a little under US$3.3 million. This is also a big jump from the first-quarter of 2015 when free cash flow came in at just US$1.2 million (US$1.5 million in cash flow from operations and US$310,000 in capex).
  5. As of 31 March 2016, the company had US$29.2 million in cash and equivalents and no debt. Sarine Technologies also has short-term investments (bank deposits) of US$7.3 million as of the same date.

In sum, Sarine Technologies experienced a sharp turnaround in its fortunes tin the first-quarter of 2016.

Revenue and profit both recovered strongly, though it must be said that the growth had come from a low base. In 2015, Sarine Technologies recorded a near-45% fall in revenue, so the reporting quarter comes as a welcome relief. The diamond manufacturing systems maker also recorded positive free cash flow and maintained a clean balance sheet with no debt.

Operational highlights

Sarine Technologies cited several trends in the earnings release that helped its business in the reporting quarter. There was an increase in polished diamond prices and a decline in rough diamond prices. The spread between the two is important for Sarine Technologies’ customers, the diamond manufacturers, when it comes to them making a profit.

Furthermore, Sarine Technologies also said that there was positive diamond jewelry demand, a replenishment of inventories, and easing of midstream liquidity problems.

On a geographical basis, revenue from India drove most of the improvements for Sarine Technologies, growing by over 38% year-on-year. Investors should note that India is a particularly important market for Sarine Technologies. For the reporting quarter, revenue from India made up almost 80% of the company’s total quarterly revenue.

For the first-quarter of 2016, Sarine Technologies delivered 18 Galaxy family systems. The total installed base for the company’s Galaxy family stood at 233 systems as of 31 March 2016. Recurring revenue accounted for 40% of the quarter’s total revenue.

Uzi Levami, the chief executive of Sarine Technologies, had commented on the future prospects of the business in the earnings release:

“Our extensive Galaxy suite of inclusion mapping solutions is now capable of processing stones from 20 points rough up to 200 carats, addressing a market segment from which 65 million polished stones are derived annually.

We expect the current trend favouring smaller stones to drive the sales of Solaris and Meteor systems. We also see continued strong customer demand for our high resolution inclusion mapping system, the Galaxy Ultra.”

The company added that it’s on track to rollout its Sarine Profile product – a product that targets the downstream segment of the diamond industry value chain – in “targeted key markets, namely the US and the Asia Pacific (APAC) region.” Sarine Technologies had shared that the uptake of Sarine Profile’s initial programs by diamond retailers in APAC “has exceeded the Group’s expectations.”

Sarine Technologies also gave colour on another of its newer product, the Allegro, a system used for processing rough non-diamond gemstones. The company said that its Allegro service centres in India and Israel have started generating initial revenue and that more Allegro machines and service centres are expected to appear during the year due in part to “growing demand for gemstones.”

Sarine Technologies hinted towards “better days ahead” in its last quarter and it looks like the better days have arrived, at least for the reporting quarter.

At its opening price today of S$1.65, Sarine Technologies traded at 73 times trailing earnings and has a trailing 12 months dividend yield of 2.3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.