Gemological Science International (GSI), a gem lab in the US, considered Sarine Technologies' third pillar of growth, appears to be shaping up nicely, writes Maybank Kim Eng analyst Yeak Chee Keong in a July 2 note.
The collaboration with GSI may add US$4 million to US$14 million ($5.4 million to $18.9 million) to Sarine's earnings. GSI is a fast-growing gem lab which grades 0.5 to 1 million stones a year. While GSI did not incorporate the full Sarine Profile, a proprietary method of grading and selling diamonds, analysts assume that grading 0.5 million stones a year using the Sarine Profile will translate to a US$18 fee per certificate.
“We believe its use of Sarine Profile may eventually pave the way for adoption by the other gem labs and also diamond retailers. Other than grading diamonds, GSI provides gemstone identification, grading and education services to many large US retail chains. As such, we believe it can play an instrumental role in educating and promoting the benefits of Sarine Profile,” writes Yeak.
Maybank Kim Eng maintains its “buy” call on Sarine with a target price of $3.07. Its Galaxy and Solaris technologies have yet to run its course, with penetration rates of 50% to 60% and 25% to 30%. Full potential of Sarine profile has also yet to be fully factored into forecasts.
Yeak also expects 2H2015's earnings to recover as manufacturer's liquidity improve and pent-up demand bumps up sales. “Such spikes have happened before, in 1Q2013 and 1Q2014 following weak quarters,” he adds.
Sarine is trading 1.73% higher at $2.35.
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