Posted by: donmihaihai | March 9, 2022

Late 2019, Sarine analysis.

The dominant player in diamond equipment/ system industry. It is very big in manufacturing equipment and moving toward the same for retail and mining. And there is no replacement for a number of their equipment and Sarine is trying to put a chain from mine to retail with Journey. Unlike previous tries, I think Journey has much higher chances of success and if it does, I don’t see anyone that can knock Sarine out in this industry.

Diamonds mainly go to ladies finger and look to continue for a long long time. Recently, LGD provide an alternative to mined diamond and as far as I can see and I think the management is right, LGD will not replace mined diamonds in any meaningful way. In fact, I suspect the conversion between ladies will go on to label LGD as cheap and inferior or even fake. In a way, LGD will become mass market product and mined diamond will become even more premium. And Sarine equipment works on LGD too so a reduction in mined diamond size will likely be offset by the addition of LGD.

In the last 5 years when Sarine was in trouble, it still managed to produce ROE of about maybe close to 10% and way higher, 20+ to 30+% during good time. All done with lot of cash and little asset on B/S, so this is its earning power of the past. For the future, I don’t know how big Sarine can grow but if I ignore growth, I don’t see why Sarine ROE to be continued below 10%. How high is another matter.

On valuation, Sarine was trading at between $0.30 to $0.35. I could get return of 10% to 15% if Sarine going to do better than last few years but still so-so, and with high upside if its ROE go back up to 20+ or 30+% when buy at close to 1.5X BV. Then the share price went down to below BV for a while. Got really excited when I keep buying while hoping that it will keep dropping.

And I wasn’t worry about the copycat competitor by illicit methods or health of diamond industry. My only worry was LGD and no matter where I poke, I kind of getting one opinion, ladies want real diamond. Doesn’t matter that the technical aspect of LGD is a real diamond, it will not be accepted as one. So, I agreed with the management.

This is it. Simple analysis of Sarine about 2 years plus back.

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