Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Asia’s leading multi-asset exchange

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Equity Bottom-Up

<p><em><strong>Non- SGX Report: These equity research reports are not written by the SGX.</strong>&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p>
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<p>INITIATION</p>
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<h2>Sarine Technologies</h2>
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<h3>Gem in the rough</h3>
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<li>The diamond market is recovering from the COVID-19 trough, as sales of rough diamonds are back at healthy levels. Sarine should benefit from a normalization of industrial activity.</li>
<li>Software complements hard rocks. Sarine’s Diamond Journey addresses the growing concerns of sustainable, conflict-free diamonds, while e-Grading could be a game changer in the diamond grading industry.</li>
<li>Other positive developments include the recent raid by Indian tax authorities on Diyora &amp; Bhanderi Company (DBC), as well as Sarine’s dual listing plans in Tel Aviv.</li>
<li>Our earlier report of an Underperform call was based off an erroneous currency calculation. Our Target Price is derived off 25 x US$0.019 EPS = US$0.49, which equates to around S$0.65, assuming 1 USD = 1.34 SGD.</li>
<li>We re-issue the initiation with an OUTPERFORM rating. Sarine looks to report 1Q21 results in the 2nd week of May. Further upside from our target price can come from positive e-Grading progress or stronger than expected equipment sales.</li>
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<h3>Investment Thesis:</h3>
<p><strong>Diamond market recovery.</strong> The reduction of rough diamond supply due to COVID-19 has aided in reducing excess inventories from prior years, while diamond sales have picked up since 4Q20, leading to favourable price dynamics. We expect Sarine to see a rebound in equipment sales and recurring revenue from the increased rate of activity in the diamond markets.</p>
<p><strong>Software complements hard rocks.</strong> With almost 20% of diamond retail sales occurring online, the diamond industry faces the challenge of staying relevant to the next generation of consumers, whom care about speed, convenience and transparency. Diamond Journey and e-Grading are features that Sarine believes will meet these needs.</p>
<p><strong>And other good news.</strong> The recent raid by Indian tax authorities on DBC, as well as Sarine’s dual listing plans serve as positive tailwinds for the stock.</p>
<p><strong>Forecasts</strong>. We expect sales to rebound 25% in 2021, and a return to profitability levels similar to 2017-2018. However, we do not expect Sarine to breach US$60mn sales by 2022, as COVID-19 cases climb again in India. Profit margins are unlikely to reach the high double digits as enjoyed by Sarine in the past, as management expects to continue spending to push out e-Grading and Diamond Journey.</p>
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Non- SGX Report: These equity research reports are not written by the SGX.&nbsp;SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.




INITIATION




Sarine Technologies



Gem in the rough




The diamond market is recovering from the COVID-19 trough, as sales of rough diamonds are back at healthy levels. Sarine should benefit from a normalization of industrial activity.
Software complements hard rocks. Sarine’s Diamond Journey addresses the growing concerns of sustainable, conflict-free diamonds, while e-Grading could be a game changer in the diamond grading industry.
Other positive developments include the recent raid by Indian tax authorities on Diyora &amp; Bhanderi Company (DBC), as well as Sarine’s dual listing plans in Tel Aviv.
Our earlier report of an Underperform call was based off an erroneous currency calculation. Our Target Price is derived off 25 x US$0.019 EPS = US$0.49, which equates to around S$0.65, assuming 1 USD = 1.34 SGD.
We re-issue the initiation with an OUTPERFORM rating. Sarine looks to report 1Q21 results in the 2nd week of May. Further upside from our target price can come from positive e-Grading progress or stronger than expected equipment sales.




Investment Thesis:
Diamond market recovery. The reduction of rough diamond supply due to COVID-19 has aided in reducing excess inventories from prior years, while diamond sales have picked up since 4Q20, leading to favourable price dynamics. We expect Sarine to see a rebound in equipment sales and recurring revenue from the increased rate of activity in the diamond markets.
Software complements hard rocks. With almost 20% of diamond retail sales occurring online, the diamond industry faces the challenge of staying relevant to the next generation of consumers, whom care about speed, convenience and transparency. Diamond Journey and e-Grading are features that Sarine believes will meet these needs.
And other good news. The recent raid by Indian tax authorities on DBC, as well as Sarine’s dual listing plans serve as positive tailwinds for the stock.
Forecasts. We expect sales to rebound 25% in 2021, and a return to profitability levels similar to 2017-2018. However, we do not expect Sarine to breach US$60mn sales by 2022, as COVID-19 cases climb again in India. Profit margins are unlikely to reach the high double digits as enjoyed by Sarine in the past, as management expects to continue spending to push out e-Grading and Diamond Journey.


















(Non-SGX Report) Sarine Technologies: Gem in the Rough