Wednesday, 27 August 2014


Kim Eng on 27 Aug 2014

  • FY6/14 core EPS (+23% YoY) below by 8%. Minor miss. Maintain BUY. SOTP TP raised to SGD1.50 from SGD1.43.
  • Numerous positives await in FY6/15E. More new products in more markets. Stronger contributions from China.
  • Raises China bet by buying CCBC’s CBs. May raise some eyebrows but there are strategic reasons.
Strong topline delivery; Minor miss
FY6/14 core earnings met 92% of our forecast. The slight miss was due to a higher-than-expected tax rate and lower-than-expected recognition of Stemlife licensing fees. Full-year revenue growth was an impressive 42% YoY, driven by the Philippines, India and Indonesia. These were growth markets it acquired last year. Hong Kong returned to profitability in 4QFY14 after a restructuring to adapt to the maternity ban on mainland Chinese women in 2013. We cut FY15E-16E EPS by 4-7% for higher tax rates.
Numerous positives await
The first is the rollout of new products (Metascreen, umbilical cord tissue storage) across the region even as its growth markets gain critical mass. The second is our expectation that Singapore’s birth rate will climb in 2015, in conjunction with its Golden Jubilee celebrations. Third, we expect maiden royalty income from China Cord Blood Corp (CCBC) and StemLife as they ramp up cord tissue storage services in China and Malaysia.
Buying more into China
Cordlife is also raising its investment in China via its accretive in-the-money acquisition of CCBC’s convertible bonds from Golden Meditech. We are optimistic on its China expansion in collaboration with CCBC, which monopolises the market. A loan facility given to a related party to buy the same CBs may appear unusual but does not change our positive view on the stock as we view this as a strategic investment. Maintain BUY. Our SOTP-based TP has been raised to SGD1.50 from SGD1.43 after incorporating the CBs’ value and some housekeeping adjustments.

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