SINGAPORE (Oct 2): Following a profit warning of impending 3Q operating losses, Maybank Kim Eng has downgraded the stock to ‘hold’ with a target price of $1.29.

Sarine Technologies, the diamond equipment maker, warned yesterday that the group would likely incur a US$1.5 million operating loss in 3Q, and sales would be subdued in 4Q.

“This would be worse than its 1Q EBIT of US$0.9 million, which we thought was the bottom,” says Maybank, “This came as a negative surprise as 2Q’s EPS had shown a 208% q-o-q recovery.”

With 1H’s EBIT now at US$4.2 million, the bank says, it expects 3Q loss to wipe out a substantial chunk of its FY15 profit.

Sarine said that the muted outlook is due to weak rough-diamond purchasing and subdued manufacturing amid a rough-police price mismatch issue.

It expects manufacturing activities to only resume to normal rates in 1QFY16.

“We cut FY15-17 EPS by 88%, 18%, 10%,” says Maybank, “Given this surprise weakness, we downgrade the stock to HOLD and would wait for clearer signs of 1QFY16 normalisation.”

Sarine’s shares closed 2.35% higher at $1.74 on Thursday.