Brokers’ take: DBS upgrades Sarine Tech to ‘hold’, expects growing trade revenues to lift margins

DBS Group Research on Thursday (May 19) upgraded Sarine Technologies : U77 0% to “hold” from “fully valued”. The research team has also raised its target price on the mainboard-listed diamond-technology company to S$0.50 from S$0.45.

The counter closed at S$0.445 on Thursday, down 1.5 cents or about 3.3 per cent.

In a research report, DBS noted that Sarine Tech’s share price had corrected to near its previous target price after its top and bottom lines normalised.

The research team’s revenue assumptions remain unchanged. However, it has raised its margin assumptions as it projects an acceleration in the trade-services segment in light of the Russia-Ukraine crisis.

“According to our channel checks, the Russian-Ukraine crisis has accelerated interest in traceability solutions by 1-2 years as companies avoid Russian mined diamonds,” said DBS analyst Sachin Mittal.

He noted that Q1 2022 trade revenues inched up to 11.6 per cent of Sarine Tech’s overall revenues, versus 8 per cent in FY2021 and 11 per cent in H2 2021. A growing trade revenues segment is positive for gross margins, he added.

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That being said, DBS believes Sarine Tech’s exceptional growth in 2021 will likely not be sustained. The “remarkable growth rates” in 2021 were caused by factors such as induced demand due to consumer spending boosted by stimulus checks, favourable polished and rough spreads and a low base effect in 2020.