Cordlife Group - Maybank Kim Eng 2016-02-16: In Transition

Cordlife Group - Maybank Kim Eng 2016-02-16: In Transition CORDLIFE GROUP LIMITED P8A.SI 

Cordlife Group (CLGL SP) - In Transition 

Missed on Expansion Costs & Soft Topline 

  • 2Q6/16 earnings missed due to high marketing and admin costs, as Cordlife undertakes several corporate exercises and expanded in the Philippines and Indonesia. 
  • 1H16 EPS made up 25% of our FY16F; we were going for c.40%. 
  • Also, topline growth was softer, due to disruptions in Singapore from a new product rollout and shift in its marketing campaign from India to the Philippines and Indonesia. 
  • Increased contributions from the lower-margin developing markets have also dragged down gross margin by 1.1ppt YoY in 2Q6/16. 
  • We cut FY16-18E EPS by 7-15% for these, which lowers our SOTP-based TP. 
  • Still, HOLD for corporate-development prospects. 
  • We have also yet to factor in its new markets and products. These include expansion into China and new products such as children eye testing and non-invasive pre-natal testing. 

War Chest for Expansion After disposing of its stake in China 

  • Cord Blood Corp (CCBC) in Nov 2015 and paying a special dividend of SGD36m in 2Q6/16, Cordlife still had net cash of SGD76m. This provides headroom for M&As to expand its reach and products. 
  • In Feb 2016, Cordlife invested SGD8.4m in CellResearch Corporation, a Singapore-based global leader in cord lining stem cells for stem cell regenerative medicine and therapy, with patents in over 39 countries. 
  • We believe CellResearch can enhance its offerings and provide a solid partnership for its expansion into China. 

Maintain HOLD; Positives Priced In 

  • We roll over to FY6/17 in our SOTP valuation and adjust cash balances for its special dividend. 
  • Our SOTP TP dips to SGD1.59 from SGD1.72. This already incorporates potential shareholding changes that could alter management control at Cordlife from corporate developments.

John Cheong CFA Maybank Kim Eng | Gregory Yap Maybank Kim Eng | 2016-02-16
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.59 Down 1.72