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outlook

Although Israeli diamantaires are giving mixed reviews of the September Hong Kong Jewellery & Watch Fair, Israel?s polished diamond exports to this part of the world are definitely on the rise. Statistics published by the Israel Diamond Controller show that for the first nine months of 2006 Israel?s polished diamond exports to Hong Kong rose by 5% to $779.4 million and to China by 6% to $80.5 million. These results are even more impressive in comparison to current exports to traditional markets like the United States and Belgium.

 

Hong Kong is the gateway to the entire South East Asian market, which is growing continuously, but people in the know are expecting China to surpass all of the other countries in the region combined. Although today Mainland China accounts for only 4% of world diamond sales, ?In 25 years time, China will be the biggest market,? said Stephen Lussier, head of marketing at De Beers. ?We?ve seen in Hong Kong that as incomes go up, the diamonds just get bigger,? he added.

Fifteen years ago few in China knew anything about diamond jewelry, but today eight out of ten brides in Shanghai and Beijing receive a diamond ring. No other market has developed this quickly. According an article published in the Guardian, it took 50 years for the US to get to this level and 20 years for Japan.

 

Just last month the Chinese market received a vote of confidence from one of the top luxury jewelry brands, when Bulgari opened an expanded store in Shanghai. Nicola Bulgari, vice chairman of the Bulgari Group, said that Bulgari considers the Chinese mainland as one of the key markets to develop in coming years, and is considering 10 additional locations there.

 

Up today because CIMB-GK reiterated its target price of $0.85.

 

Matthew8, the reasons are all in the reports. I bought at $0.48 and sold at $0.58. It certainly looks like there is a bit more of upside left.

 

Nostradamus  -  I tikam tikam 10 lots at 0.54 cents this morning and contraed at 0.58 cents.  From what I saw in price action, I believe it still has strength to move up.  Should it dip back to 0.56 cents, I will tikam again.

Just curious.  Do you know why "UOBKH also has a price target of $0.43 cents - as posted by you in your earlier posting?


How about you?  Did you profit from this morning's run up?

 

It's $0.58 now. Time to take profit.

 

The weakness was attributable to a slowdown in the global diamond industry, as well as performance issues with its Quazer line of products. Worst hit was Sarin's largest market, India. The drastic decline in global capital markets in May 06 and recent trade shows in Jun 06 only served to confirm the global slowdown.



Meanwhile, UOBKH believes demand for Sarin's products will likely remain anaemic, regardless of new product launches. In addition, gross margin is expected to be squeezed in the next few quarters. UOBKH also has a price target of $0.43.

 

There is severe flooding during the Jun-Sep annual monsoon season, particularly this year.

 

The industry downturn hit India the most, which wasn't surprising given its position as the largest diamond producer in the world. The industry downturn looks set to continue into the next 2 quarters. Outlook looks bleak as Indian manufacturers struggle to clear excess inventory. CLSA has a price target of $0.56.



Recent heavy flooding in the city of Surat (India's gem-cutting and polishing hub), has badly hit the diamond industry. Traders expect production losses of $30m daily and the industry may take weeks to recover. The rains had damaged cutting machines according to news sources. PS has a price target of $0.43.

 

Sarin said that rocket attacks aginst northern Israel has not affected its operations, since its offices and production facilities are located in central Israel. However, there's still nervousness over the counter.

 

The initial trigger for the profit warning has been a slowdown in the demand for diamonds in the US (50% of global end-demand), resulting in inventory returns to Indian manufacturers, stretching their balance sheets. Combine this with rising interest rates and a more risk averse Indian banks in granting credit to small manufacturers, these manufacturers have had to curtail capex.



With Indian manufacturers accounting for 77% of FY05 Sarin's sales, this capex slowdown will derail its earnings momentum for the rest of FY06. sales from new products being rolled out in 2H06 will provide some buffer. Other offsets would be high end-demand growth from China, India and Middle East, but these ramain too small to offset the US slowdown.



The US consumer discretionary spending slowdown has only begun, it is prudent to expect earnings to be slashed 36-46%.



SELL.

 

Issued a profit warning. Said that the diamond industry is experiencing a worldwide slowdown. Avoid.

 

target price 1.57.