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CCBC rallied on mounting dividend pressure
US-listed CCBC’s share price shot up to a 3-year high of USD5.78 after one of its major shareholders, Jayhawk Capital, sent an open letter urging it to pay a USD125m special dividend out of its ample cash reserves.
Jayhawk also asked CCBC to initiate regular share repurchases and dividends from its rich cash flow. Jayhawk valued CCBC at USD16.80/share, based on 20x FY3/16E cash flow. This is almost 3x the USD6.00 we use in our SOTP valuation for Cordlife.
Dividend will help Mr Kam meet financing obligations
In our previous note, we highlighted that CCBC’s chairman, Mr Kam, would likely press for a dividend of at least USD0.37/share.
This is to cover his interest-cost shortfall for a loan given by Cordlife to purchase his convertible bond. When Mr Kam fulfils his first interest payment due in May, a major overhang could be lifted for Cordlife, which was over his potential default. If CCBC does pay out, its dividend could add SGD5.5m to Cordlife’s FY15E earnings.
Could lift our TP significantly for Cordlife; BUY
Cordlife owns 10% of CCBC and has a convertible bond that lifts this stake to a fully-diluted 14%. At our current valuation of USD6 for CCBC, Cordlife’s 14% ownership amounts to SGD0.47/share in our revised TP of SGD1.35.
Every USD1 rise in CCBC’s valuation could raise our TP for Cordlife by eight SGD cts. We raise our TP from SGD1.30 as we roll over to FY6/16E.
Full report here.
