Sarine Technologies - DBS Research 2022-08-12: Recurring Revenues Shine

• Sarine Technologies (SGX:U77)'s 1H22 revenue was US$31.2m vs US$36.0m in 1H21 (+19.2 h-o-h, -13.3% y-o-y). The 13.3% decline y-o-y can be attributed to a high base effect in 1H21 during the post pandemic rebound of the diamond industry. 1H22 revenue amounted to 54.5% of our full year estimates, broadly in line with expectations as the first half of the year is typically stronger.
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• Capital equipment sales declined by ~30%, offset by higher recurring revenues. The lower capital equipment sales can be attributed mainly to geopolitical uncertainties. Our checks indicate that this sharp drop is unlikely to recur as there has been some easing in geopolitical uncertainties. Nonetheless, this was cushioned by an 22% increase in recurring revenues that consisted of trade related revenues and diamond scanning revenue.
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• Higher margin trade-related revenues more than doubled. Trade revenues grew 70%, reaching 11% of total revenue from just ~6% in 1H21. Sarine Technologies is seeing increasing adoption of the Sarine Diamond Journey by many global brands such as Maison Boucheron and the Aura Consortium which comprises Cartier and LVMH.
• China’s National Gem Testing Centre, the largest gemological laboratory has adopted The Sarine Profile, which should support growth in trade-related revenues. There are also further developments in two key trade-related services with the broader roll-out of e-grading to midstream customers and beta-testing of Sarine AutoScan. Advancements in the trade-related segments have been encouraging and we believe that the growing trade revenues will be a key catalyst for Sarine Technologies.

Our Thoughts

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Sachin MITTAL DBS Group Research | Singapore Research Team DBS Research | https://www.dbs.com/insightsdirect/ 2022-08-12 SGinvestors.io

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