Share price: SGD1.28
Target price: SGD1.47 (from SGD1.29)
Growth Story Backed by Resilient Earnings
Results in line. Cordlife announced its 4QFY6/13 results yesterday. Recurring net profit is 6% above our expectation on the back of strong revenue and higher profit from its newly acquired China’s associate. We raise our TP to SGD1.47 and maintain our BUY rating with 15% upside.
Resilient earnings maintained despite headwind in Hong Kong. Earlier, a complete ban of mainland women from giving birth in Hong Kong has raised concern on Cordlife’s earnings, this result show that Singapore market itself is strong enough to outpace a minute slowdown in Hong Kong. With only one product, Singapore market registered a revenue growth of 24%, making up for a slowdown of 17% in Hong Kong market, bringing the total revenue growth to a record strong 15%.
Umbilical cord tissue storage in full swing. Moving ahead, we expect Singapore market to be more attractive as contributions from umbilical cord tissue storage will be in full swing subsequent to its nationwide launch recently. We view this service as entirely compatible with its current bestselling service, where Cordlife can effortlessly push the product through its existing marketing channel which consists of its experienced sales team and established relationship with doctors. Moreover, as the sole provider of this service in Singapore provide an edge to Cordlife on many fronts.
Aggressive headcount increased serves as a strong growth signal. According to its results note, Cordlife has incurred SGD1.2 million to increase headcount to maintain its service quality. In our view, it serves as a signal that company is confident on sustaining a strong growth rate moving forward as it seeks to market its umbilical cord tissue and launch more new product in its pipeline.
Transforming to a multi-product healthcare player. Cordlife’s statement of its transition plan serves as a strong hint that it is ready to launch new product in its pipeline.
Attractive growth story remain intact. We continue to like the company as it delivers attractive results and embark upon its multi-product expansion across Asia, where a good market mix of high penetration rate with stable earnings and high birth rate with high potential can be found. None of its global cord blood peers have comparable wide market exposure and strong margin such as Cordlife. On the back of this, it should warrant a premium for Cordlife. Our TP of SGD1.47 implies 25x FY14F, which is one point above its global peers and 14% discount to its local peers.
Publish date: 27/08/13