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Sarin Technologies Ltd (SGX:U77)
May 25, 2007, 3:44 am
Filed under: companies analysis

Sarin Technologies Ltd (SGX: U77)

As of 17 May 2007

  • USD 1.53 = SGD 1
  • EPS: 0.049/share
  • P/E ratio: 14.18
  • Earnings Yield: 7.05%
  • 52 Week High: 1.090
  • 52 Week Low: 0.460

The One Minute Story

Sarin Technologies Ltd deals in the development, manufacture and sale of precision technology products based mainly on automated three-dimensional geometric measurement (metrology) for the processing of diamonds and gems. Our systems comprise various hardware technologies, like electro-optics, electronics, precision mechanics and lasers. At the heart of these systems is the computer software that implements three-dimensional modelling and advanced mathematical algorithms.

Financial Analysis (in SGD)

YEAR

2006

2005

2004

2003

2002

Book Value Per Share

0.163

0.143

0.062

0.047

0.008

Cash Per Share

 

 

 

 

 

Cash Flow Per Share

-0.021

0.059

0.031

 

 

Earnings Per Share

0.049

0.064

0.036

0.020

0.003

Dividend Per Share

0.0200

0.0308

0.0281

 

 

Dividend Payout Ratio

40.6%

48%

77%

 

 

Net Profit Margin

26.7%

30.8%

23.8%

24.5%

8.3%

Return on Total Asset

25.5%

43.0%

62.1%

 

 

Return on Equity

31.1%

43.0%

62.1%

 

 

Current Ratio

5.0

3.4

1.8

 

 

Long Term Debt of Capitalisation

N/A

N/A

N/A

 

 

Sarin is in outstanding condition financially (amazing net profit margins, high ROE, fantabulous current ratio) with the sole exception of it’s cash flow in FY2006. Hence let’s examine why it is cash flow negative in 2006.

The biggest negative item on the operating cash flow part of the cash flow statement is Short Term Investments, which amounted to USD 11.268m as compared to USD1.099m in 2005. This explains the negative cash flow in 2006; cash is locked up in bank deposits and short-term interest rate instruments. This is fine since looking at the current assets, there is a strong shift from holding pure cash and equivalents to that of short-term investments, which might be an indication of management savvy in going for increased yield on cash. Hence the negative cash flow is probably not much of a concern.

Sarin claims to be a world leader in the diamond processing technology. It’s high profit margins seems to indicate a strong competitive position or an industry which is not saturated yet. Sarin concedes that it is hard to find data to assess their position in the industry because it is not covered by many analysts and most of the players in the industry are privately-held companies. This might be a good profit opportunity since the larger players in the market has not discovered this stock yet.

Changes in global demand for diamonds will definitely affect Sarin’s business. However, the risk seems to be mitigated since Sarin provides machines and technology to diamond manufacturers and do not sell diamonds themselves. This is because there is a trend towards relocating diamond manufacturing to places like India and China and technology like that provided by Sarin will help lower costs for manufacturers. Hence fluctuations in demand for diamonds might not affect Sarin so much since manufacturers want to cut costs regardless of the prices of cut diamonds.

The high ROE seems to indicate efficiency in allocation of resources and good management. The informative annual report for 2006 seems to indicate above average shareholder orientation.

Why Buy

  • High profit margins of 30%, current ratio of 5.0, no long term debt and high ROE – probably well runned.
  • Participation in the global luxury goods industry by proxy with the mitigation of risks associated with the retailing and manufacturing of diamonds.
  • Benefit from the shift in production methods and base from hand to machine and from established countries to emerging countries.
  • It’s a firm with global ambitions and spread- it is a leader in the diamond cutting machinery industry.
  • Directors have a strong interest in the company.

Why Not Buy

  • Fluctuating profit margins, cashflow per share and earnings per share.
  • I don’t understand exactly the technology and products Sarin offers.
  • Hard to ascertain if Sarin is indeed a world leader in diamond technologies.

Potential Problems

  • The decline in the USD might hurt profits.
  • Overall economic decline in the world (especially in the developed world and the US) will hurt the sales of luxury goods, and hence Sarin might face problems.

03/07/07

Some possible proof that Sarin is a leading manufacturer- http://www.pricescope.com/hearts_mach.asp, http://www.agentinteractive.com/reviews/sarin.html

Ogi Systems, a competitor- http://www.ogisystems.com/

Disclaimer: The author bears no responsibility for any financial losses caused by reliance on the author’s views. Investors are advised to do their own research before making their investment decisions.

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