Maybank Kim Eng 2015-08-18: Cordlife Group Limited - Royal Rumble.


Royal Rumble 

  • Bidding war for CCBC increasingly likely with three contenders: GM, Zhongyuan & the latest, Nanjing Xinjiekou. 
  • Cordlife attractive as takeover target given its ownership of pivotal stake in CCBC. 
  • BUY with SGD1.56 SOTP TP. Undervalued even without a takeout, at 18x ex-cash with special DPS potential. 

What’s New 

  • As three contenders are now vying for CCBC, up from just one in April, a bidding war may start, in our view. Besides first-mover Golden Meditech (GM) with its lowest bid of USD6.40, Nanjing Xinjiekou recently put at least USD8.00 on the table. 
  • Behind the scenes, Zhongyuan Union Cell & Gene Engineering, the operator of Tianjin Cord Blood Bank, has made two unsolicited offers to Cordlife for its stake in CCBC. They were not taken up. 

What’s Our View 

  • We believe Cordlife can still benefit, either from a higher bid by GM or one of the parties making an offer for the whole of Cordlife to contest for its stake in CCBC. It is still able to walk away from the conditional sale of its stake in CCBC to GM without legal consequences if its shareholders block such a deal in an EGM. For Cordlife’s shareholders to reject GM however, there must be a much better competing offer. 
  • In our view, only a full GO for Cordlife itself will suffice. Given the likely intensity of a bidding war for CCBC and Singapore’s high healthcare valuations, we think an offer for Cordlife needs to be at SGD1.62-2.09 to be taken seriously. It must also reach shareholders before the EGM is held, likely in Sep/Oct. 
  • Risks to a takeout include China’s market rout and currency devaluation that may sap buyers’ appetite. However, even if there is a no takeout, we believe Cordlife is still undervalued at 18x excash P/E. It will still get up to SGD150m cash from its stake sale to GM, which will make up more than 40% of its market cap. With this cash, there is potential for hefty special dividends.

John Cheong | Gregory Yap Maybank KE 2015-08-18
BUY Maintain BUY 1.56 Same 1.56