Maybank Kim Eng 2015-08-31: CordLife Group - Core intact; cost-drag temporary.


Core intact; cost-drag temporary 

  • FY15 core profit below at 81% of our FY15E, due to higherthan-expected marketing & admin costs to raise awareness and professional fees for MTN and CCBC deal. 
  • Core business remains intact, FY15 revenue and gross profit in-line, rising 17% and 15% YoY, respectively. 
  • Maintain BUY. SOTP TP reduced to SGD1.53 from SGD1.56 after EPS cut of 1-2%. Catalyst from quicker expansion. 

Core PATMI below but core business remains sound 

  • FY15 core profit fell 11% YoY, due to higher-than-expected marketing and admin costs, for business expansion and marketing initiatives in markets such as India to boost brand awareness. In addition, professional fees attributable to the MTNs issued last year and sale of its China Cord Blood Corporation (CCBC) stake to Golden Meditech were close to SGD1m. 
  • However, topline and gross profit grew by a healthy 17% and 15% YoY, respectively, in line with our forecast. This growth was driven by a robust 33% increase in client deliveries across its network. 

Huge cash pile to fuel organic growth 

  • Management reiterated that net proceeds of c.SGD150m from the sale of the CCBC stake will be used to fund organic growth, after MTN repayment and special dividend payout. Growth initiatives in FY16E include expansion of its Philippines and Indonesia operations, venturing into China market through other channels and rolling out its new Metascreen product across the region. 
  • We trim our FY16-17 EPS by 1-2% for higher marketing and admin costs, attributable to its expansion activities and China venture. 

Maintain BUY; catalysts from higher-return expansion 

  • We reduce our SOTP TP to SGD1.53, after our EPS cut of 1-2% for FY16-17. We expect catalysts from better returns in its core markets and greater momentum from India now that awareness has been raised. 
  • Also, there remains upside potential from its CCBC stake. GM could still raise its offer beyond USD6.40/share, depending on the outcome of the IFA review.

John Cheong | Gregory Yap | Maybank KE 2015-08-31
BUY Maintain BUY 1.53 Down 1.56