Cordlife Group Limited
LAST CLOSE: S$1.05
FAIR VALUE: S$1.32
We initiate coverage on Cordlife Group Limited (CLGL) with a Buy rating and target price (TP) of $1.32. CLGL is a leading provider of cord blood and umbilical tissue storage services in Singapore, Hong Kong, India, Indonesia and the Philippines. We view the low penetration rates of the stem cells storage industry as an opportunity for investors to ride on the industry’s growth potential in Asia.
Defensive qualities with sustainable recurring cash flow. CLGL provides attractive exposure to the defensive healthcare universe amid broad market decline. The Group presents a strong business model which generates sustainable recurring cash flows from its growing subscription base. Building on economies of scale, the Group in expected to sustain its high margins in the long term.
Accretive acquisitions to drive earnings. CLGL acquisitions of subsidiaries in India, Indonesia, and the Philippines potentially strengthens the Group’s geographical positioning in Asia. Each subsidiary has significant market leadership in cord blood banking which would enhance the Group’s earnings power hence making it a compelling value proposition.
Expanding product offerings for further organic growth. Leveraging on its strong relationship with the local obstetricians and gynaecologists (OBGYN) network and partnerships with local hospitals, CLGL sees many opportunities in catering services for women and children. Besides introducing umbilical tissue storage service in Singapore which generates a new stream of income, the Group looks to pursue vertical expansion with future product introductions in the pipeline.
Valuation. We derive our TP based on a DCF H-model with assumptions for continuous growth motivated by higher penetration rates and incremental contribution by subsidiaries. We believe the stock will continue to outperform on upside to earning estimates.
Publish date: 02/08/13