Wednesday, November 12, 2008

Sarin Technologies: S$0.16 (NOT RATED) - Limited impact from current economic crisis

As pre-warned. In-line with the profit guidance that the company had issued prior to releasing its financials, 3Q08 net earnings fell 49% to US$1m while turnover declined 6.9% to US$8.8m. Due to the global financial crisis and the tight credit market, Sarin had seen an overall slowdown in demand from diamond manufacturers. However, 3Q08 gross margins as seen in Figure 1, were higher at 65.7% due to a change in product mix although the company was badly hit on the operating front due to higher R&D and SG&A expenses while the weakening US$ was also a factor.

Robust balance sheet and cash flows. Sarin continued to be debt-free in 3Q08 while its current ratio stood at a very healthy 3.4x. Presently in a net cash position of US$11.1m, this equates to US$0.043/share and 39.9% of its current price. The company also continued to be operationally positive as it generated free cash flows of US$4.0m during the quarter.

Macro outlook is not positive. Management has mentioned that the global economic slowdown has affected its business. Consumers in the US – the world’s single largest market for polished diamonds – have cut back on their purchase of luxury items, such as diamonds, during the current financial crisis. Should this downturn continue to linger, we believe that the company may be further affected.

Valuation & Recommendation. At S$0.16, it is currently trading at 3.4x FY07 P/E. We presently do not have a rating on Sarin although we will be initiating coverage on the stock. To the best of our knowledge, there are currently no consensus forecasts on Sarin while all of its main competitors are unlisted companies.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

No comments:

Subscribe via email

Enter your email address:

Delivered by FeedBurner