Stable prices at June sight
- Rough prices reportedly stable at De Beers’ June sight. Neutral for Sarine.
- Low rejection rates despite price dissatisfaction.
- Maintain BUY & DCF TP of SGD3.07. Catalysts expected from 2H15 recovery.
What’s New
- De Beers’ fifth sight of the year on 8-12 Jun ended with estimated sales of USD550m. According to Rapaport, rough prices were stable, with slight increases in the box price of larger stones.
- Sightholders had hoped for further price cuts following May’s 3% drop, but this did not materialise. That said, rejection rates were ‘small’ despite complaints of high prices, unlike the 20-30% rates during Sight 1 in Jan 2015 and Sight 3 in Mar 2015.
What’s Our View
- We are neutral on the outcome. It would have been better had there been further drops in rough prices, potentially triggering strong take-up of De Beers’ goods. But the outcome was not negative either as rejection rates were reportedly low.
- We think that buyers’ willingness to take goods may suggest a temporary acceptance of rough prices, seeing hope in rising polished prices. This followed improved sentiment on US polished demand after the JCK show three weeks ago.
- Challenges remain for 2Q15. We expect a more meaningful recovery only in 2H15 from normalising sales backed by pent-up demand.
- Sarine reported “overwhelming” interest in its Sarine Profile(TM) product and closed some significant deals during the JCK show.
- Rosy Blue, a leading manufacturer, will also be replacing all its manufacturing equipment with Sarine products.
- In our view, Street estimates are over-pessimistic and may have discounted added potential from its polished-diamond segment in FY16-17.
- We keep our forecasts and DCF TP of SGD3.07 (WACC 9.6%, Terminal growth 2%). Maintain BUY.
Source: http://www.maybank-ke.com.sg
