CORDLIFE GROUP LIMITED (SGX:P8A)
Cordlife Group - Lifeguarding Your Child’s Future
- Established in May 2001, Cordlife Group Limited (SGX:P8A) is a leading company in private cord blood and cord lining banking services in Asia.
- Cordlife owns the largest network of cord blood banks in Asia with full stem cell banking laboratories in six key markets: Singapore, Hong Kong, Indonesia, India, Malaysia and the Philippines. Cordlife has also expanded its presence to Myanmar and Vietnam in 2017 as well as Bangladesh in 2019 through its marketing agents.
- Beyond cord blood and cord lining banking, Cordlife offers a suite of diagnostics services, including urine-based newborn metabolic screening, non-invasive prenatal testing, paediatric vision screening and family genetic screening services.
Cordlife Group - Business Segments
Banking
- The banking segment comprises of cord blood, cord lining and cord tissue services. Cord blood, cord lining and cord tissue are collected, processed and stored in the various laboratories in the regions that Cordlife Group operates in.
- Cordlife Group announced in March 2021 a new banking service, OptiQ, which is the banking of corneal lenticule. OptiQ allows myopic and astigmatic patients undergoing refractive eye surgery using lenticule extraction method (e.g. SMILE) to cryopreserve their lenticules for potential future use. The technology behind OptiQ was invented by Singapore Eye Research Institute and patented by SingHealth, and Cordlife Group is the exclusive license holder of this patent.
Diagnostics
- The diagnostics segment comprises non-invasive prenatal testing, newborn metabolic screening and paediatric vision screening services. Cordlife Group offers a comprehensive suite of diagnostics services for the family, including urine-based newborn metabolic screening, non-invasive prenatal testing, paediatric vision screening and family genetic screening services.
Cordlife Group - Financial Summary
FY2020 revenue hit with lower new sign ups
- Revenue decreased by 17.8% y-o-y from S$61.6 million in FY2019 to S$50.6 million in FY2020 despite being classified as essential services during the COVID-19 period. Apart from the tightening of spending during the pandemic, the drop was also attributable to the movement restrictions.
- As Cordlife Group also processes samples from outside their six markets by transporting the samples to one of their labs, the movement limitations made service delivery challenging, which impeded sales. This resulted in a 23.2% decrease in the new samples processed and stored from 26,700 in FY2019 to 20,500 in FY2020. The decrease in revenue due to the decline in new samples stored was slightly mitigated by the conversion of more clients to higher value price plans mainly in Singapore and the Philippines.
- While cord banking segment’s revenue waned, diagnostics and other services segment grew 69.8% y-o-y to S$2.8 million, due to the increase in pre-natal testing services offered by Cordlife Group.
- Net profit was up marginally, increasing 1.2%, held up by lower selling and marketing expense, lower taxes (13.3% of PBT vs 20.5% of PBT) and higher government grants in Singapore, Hong Kong and Malaysia, which totalled S$2.1 million. We expect government grants to decrease this year as Singapore recovers from COVID-19.
- Gross margin decreased to 62.7% in FY2020 (FY2019: 64.5%) with lower share of revenue from the higher-margined cord banking segment.
Finance income from contract assets
- The contract assets primarily relate to the unbilled portion of the payments relating to storage. The contract assets are transferred to trade receivables when the rights become unconditional, i.e when Cordlife Group invoices the customer. Finance income is deemed to be received on the contract assets, and is based on Cordlife Group’s assumed interest rate. In FY2020, finance income from contract assets was S$8.4 million (FY2019: S$8.3 million). Finance income from contract assets can be treated as a recurring income.
Net cash
- Including fixed deposits, Cordlife Group is in a net cash position of S$48.1 million. Total debt/equity is 3.0%. The high cash amounts puts Cordlife Group in a good position for investment activities when potential M&A opportunities come up.
Cordlife Group - Growth Outlook
Diagnostics services as an extension to banking services
- In its bid to increase customer lifetime value, Cordlife Group had introduced add-on testing services for cord blood banking. They are also marketing their diagnostics services (non-invasive prenatal testing (NIPT) and family genetic testing, noninvasive newborn metabolic screening, and paediatric vision screening) through their existing channels.
- Although gross margins of diagnostics services are lower with higher competition in the market, we believe it is a value-added extension to their core banking services. In FY2020, diagnostics and other services segment grew 69.8% y-o-y to S$2.8 million. Although it remained a small contributor to Cordlife Group's overall revenue at 5.5%, we believe in the growth of this segment.
- With the increased average age of pregnant women globally, NIPT is able to detect any abnormalities in the foetus before childbirth. According to Fortune Business Insights, the global NIPT market size was US$3.48 billion in 2020, and is projected to grow at a CAGR of 18.1% from 2021- 2028 to reach US$13.16 billion.
Riding on medical trends: OptiQ corneal lenticule storage
- Myopia affects 82% of the 20-year-olds in Singapore, making it one of the highest in East Asia. According to a systematic review from Brien Holden Vision Institute, nearly half of the world is expected to be affected by 2050, a sharp increase from 28% in 2010. This is largely driven by modern lifestyle changes and proliferation of technological devices usage.
- The Ministry of Health has issued a licence permitting Cordlife to launch OptiQ, a corneal lenticule banking service in Singapore in March 2021. This makes Cordlife Group the first company in Asia to let patients undergoing refractive eye surgery using lenticule extraction method (e.g. ReLEx SMILE) for myopia or astigmatism, cryopreserve their corneal lenticules for potential treatment of presbyopia and other ocular conditions in the future. The technology behind OptiQ was invented by Singapore Eye Research Institute and patented by SingHealth, and Cordlife Group is the exclusive license holder of this patent.
- ReLEx SMILE (Refractive Lenticule Extraction, Small Incision Lenticule Extraction) is a bladeless, more gentle and flapless laser vision correction. This makes it less invasive with shorter procedure and recovery time. Though tagged with a higher cost than other forms of LASIK, we believe that the reduced post-surgery discomfort may increase the take up rate of ReLEx SMILE procedure.
Expanding footprint in Asia
- Cordlife Group owns the largest network of cord blood banks in Asia with full stem cell banking laboratories in six key markets, namely: Singapore, Hong Kong, Indonesia, India, Malaysia and the Philippines.
- Cordlife Group has also expanded its presence to Myanmar, Vietnam and Bangladesh through its marketing agents. This means that currently, the storage for Myanmar and Vietnam customers are in Singapore, and Bangladesh’s is in India.
- Though we expect the higher-income countries would in general give higher gross margins, we believe it would be strategic for Cordlife Group set up laboratories in Myanmar, Vietnam and Bangladesh since they possess an understanding of these markets. Diagnostics and other services can then be rolled out as they gain market presence.
Rising income levels in key markets
- Cordlife Group’s services mainly target the middle-upper income segments. With rising income, the population will be better able to afford discretionary services.
- Singapore’s overall average monthly household income has risen 2.4% from the period of 2012/2013 to 2017/2018, with the middle-income group (41st-60th percentile: +3.0%); upper-middle income group (61st-80th percentile: +3.3%) and high-income group (81st-100th percentile: +1.6%).
- Average salary growth rate in Hong Kong was 2.1% in 2020 (2019: 4%), still positive though it was lowered by political tensions in the country. Indonesia had also become an upper-middle income country in 2020, an upgrade from its previous lower-middle income status, with the expansion of its working middle class. India also had a favourable demographic trend towards a rising middle income, with almost 55% of the population expected to move to the ranks of middle class. However, we believe income growth in India may be impeded as Covid may have a sustained impact on the country’s wealth.
Cordlife Group - Key Risks
Low birth rates globally
- Birth rates around the world around the world had been facing a decline in the past few decades, and the trend is likely to continue moving forward with rising income levels. According to data from the World Bank, total births per woman dropped from 2.70 in 2000 to 2.41 in 2018.
- Declining birth rate is a phenomenon much more prevalent in higher income countries, which is the case for two of Cordlife Group’s key markets (Singapore and Hong Kong) with the middle to upper class professionals having fewer babies. Singapore’s birth rate dropped from 1.83 in 1990 to 1.10 in 2020. With fewer births, population base available for cord banking would thus shrink.
- Cordlife Group has been seeking revenue diversification away from being a pure provider of cord banking services, into administering diagnostics services and venturing into OptiQ.
Competition in key markets
- The cord banking services provided by the different cord banks are arguably largely homogenous. SCCB has also gone into private cord banking, on top of having a public one. Thus, price can be a huge differentiating factor. However, as the storage period is for a length of 21 years and can potentially be longer, reputation, accreditations and track record also contribute as deciding factors for parents. Gaining higher market share and brand name in key markets through potential M&As will continue to be one of the top priorities of Cordlife Group.
- See
Lim Li Jun Tracy
SAC Capital Research
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https://www.saccapital.com.sg/
2021-05-07
SGX Stock
Analyst Report
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SAME
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