■ Rough prices reportedly stable at De Beers’ June sight.
Neutral for Sarine.
■ Low rejection rates despite price dissatisfaction.
■ Maintain BUY & DCF TP of SGD3.07. Catalysts expected from
De Beers’ fifth sight of the year on 8-12 Jun ended with estimated
sales of USD550m. According to Rapaport, rough prices were
stable, with slight increases in the box price of larger stones.
Sightholders had hoped for further price cuts following May’s 3%
drop, but this did not materialise. That said, rejection rates were
‘small’ despite complaints of high prices, unlike the 20-30% rates
during Sight 1 in Jan 2015 and Sight 3 in Mar 2015.
What’s Our View
We are neutral on the outcome. It would have been better had
there been further drops in rough prices, potentially triggering
strong take-up of De Beers’ goods. But the outcome was not
negative either as rejection rates were reportedly low. We think
that buyers’ willingness to take goods may suggest a temporary
acceptance of rough prices, seeing hope in rising polished prices.
This followed improved sentiment on US polished demand after the
JCK show (report) three weeks ago.
Challenges remain for 2Q15
. We expect a more meaningful
recovery only in 2H15 from normalising sales backed by pent-up
demand. Sarine reported “overwhelming” interest in its Sarine
ProfileTM product and closed some significant deals during the JCK
show. Rosy Blue, a leading manufacturer, will also be replacing all
its manufacturing equipment with Sarine products. In our view,
Street estimates are over-pessimistic and may have discounted
added potential from its polished-diamond segment in FY16-17. We
keep our forecasts and DCF TP of SGD3.07 (WACC 9.6%, Terminal
growth 2%). Maintain BUY
. (Read Report)
Source : Maybank Kim Eng Research
Labels: Sarine Technologies, Technology Sector