Solutions provider in diamond manufacturing. Sarin Technologies deals inthe development, manufacture and sale of precision technology products used for the processing of diamonds and gems. Its systems comprise of various hardware technologies like electro-optics, electronics, precision mechanics and lasers.

Market leadership. Sarin’s products are used almost exclusively by the major gemmological laboratories worldwide. We believe this gives Sarin a strategic advantage over its competitors, as their selection of Sarin’s products is effectively an endorsement of the product quality.

Impact from forex volatility. FX fluctuations may have an adverse effect on Sarin’s business. The strengthening of the New Israeli Shekel against the US dollar may impact the company’s profitability, as some of its expenses are paid in this currency while its sales are booked in the US$.

Automation to continue. As the overall drive to increase yield and productivity remains a key concern while the access to higher-quality rough diamonds becomes more constrained, ongoing investments pertaining to the automation in the diamond manufacturing industry is expected to continue. We believe that this trend would be beneficial to Sarin.

The ongoing economic downturn. As the diamond industry is mostly an export-based sector that depends predominantly on the US and European countries, the health of these economies is expected to be a decisive factor on how well global diamond sales will turn out going forward.

Recommendation. Currently trading at 2.7x FY09 P/E and assuming it trades up to its historical P/E average of 3.2x, we arrive at a target price of S$0.135. Initiate coverage with a NEUTRAL recommendation.