Cordlife Group

Voyage Research, Sep 5

YESTERDAY, Cordlife Group (Cordlife) announced the proposed acquisition of a 19.9 per cent stake in StemLife Berhad (StemLife) at about RM29.6 million, which will be fulfilled via the issuance of 8 million Cordlife shares and RM2.85 million cash. The consideration is arrived at after taking into account StemLife's cash balances of RM76.8 million as at end-June 2013, freehold land with an original book value of RM6.9 million and its fundamental prospects.

We see several benefits in this acquisition. First, it will enable Cordlife to expand its footprint into Malaysia and, potentially, Thailand. There may be an opportunity for a Cordlife-StemLife collaboration; they can cross-sell cord blood banking services in both nations and offer a different tier of services.

More growth will also be generated following Cordlife's intention to extend its product offerings in the mother-child segment. StemLife will be able to improve its gross margin as it can now ride on Cordlife for bulk purchasing and adopt more effective and advanced systems.

Most of the growth prospects will be gradually realised over the years. Hence, we are upping our terminal growth rate to 5.5 per cent from 5 per cent and assuming that StemLife will contribute S$0.5 million attributable profit in FY2014 and S$0.9 million profit in FY2015. Our model reflects a revised price of S$1.60 per share. Maintain "invest".

INVEST