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Investment case: Asian penetration
It takes 3-6 months for earnings to be recognised after the clients have signed up for Cordlife's services.From just three markets, Cordlife expanded into the Philippines, India, Indonesia, Malaysia and Thailand in 2013. It plans to launch more products and gain market share for its cord blood and cord tissue storage services. Its expansion has turned it into a multiproduct healthcare distributor in Asia.
Catalysts: Strong India contributions, CCBC dividends
We expect earnings to accelerate in the coming quarters as Indian clients have signed up strongly following its intense marketing. These clients should start delivering their babies in 3QFY6/15, with a 3-6-month lag.
Also, winding down its vigorous marketing should lift margins.
Another catalyst could be maiden dividends from CCBC. CCBC could potentially pay up to SGD5.5m from its FY6/15E core profit of SGD9.0m, before May.
Valuation: SGD1.35 TP
Our SOTP TP values its core business at 25x PER, on par with its peers. Our valuation also includes 7.3m CCBC shares and CCB convertible bonds.
Risks: High expenses in pursuit of market share
Cordlife might spend substantially on marketing to gain market share and defend its leadership in several markets. Costs are likely to be incurred 3-6 months before earnings flow in, since there is a time lag of 3-6 months between client registrations and baby deliveries.
