Cordlife Group Ltd:
Can’t miss expansion into neighboring country
(Downgrade to HOLD, FV: S$1.42)
Acquisition of 19.92% stake in StemLife. Cordlife Group Limited (CLGL) has announced a S$11.5m (RM29.58m) conditional acquisition of 19.92% stake in ACE Market-listed StemLife Berhad, a leading provider of cord blood banking services in Malaysia. The consideration will be satisfied with the issuance of 8m new ordinary shares in CLGL to StemLife’s Managing Director Dato’ Low Su-Shing and Deputy MD Dato’ Lim Oi Wah at an issue price of $1.30 and cash payment of RM2.85m. The acquisition is for 49.3m shares in StemLife at the agreed price of RM0.60 per share, a 62% premium above the company’s last close of RM0.37 per share as at 4 September 2013, which implies 18x PE multiple based on FY12 earnings and 4.4x PB multiple. (Refer to table) Supplement to the Sale and Purchase agreement (SPA). Following the SPA, the founder and co-founder of the company would jointly hold a 2.5% stake in StemLife (decreased from 22.4%) and their holdings in CLGL would amount to 0.03% in total.
Firming geographical footprint in ASEAN. From the announcement, CLGL perceives the acquisition as an avenue to secure its market share in ASEAN with exposure to Thailand and Malaysia through StemLife, who is a pioneer of the local stem cell industry and a dominant player in Malaysia with a 60% market share. We expect StemLife to grow at CAGR 10-20% with improved efficiency to tap on the market opportunities, which is estimated to be 2.5x the potential in Singapore.
Synergistic collaborations expected. CLGL’s CEO and chairman would join the board of directors of StemLife after approval from the nominating committee. The acquisition will allow the Group to work collaboratively with StemLife to extend reach of its complementary services (e.g. umbilical cord tissue banking) in Malaysia and Thailand. On the other hand, StemLife is equipped with the ability to conduct in-house pre and post-collection testing, which could allow CLGL to replicate the systems in its subsidiaries for future cost reductions.
We maintain TP of $1.42. Since our initiation with a BUY rating on 2 August 2013, CLGL has recorded a return 24.8% with its last close of $1.31. We do not expect the share purchase to impact significantly on the Group’s earnings in the near term. Given that the current price is 8.4% from our fair value, we downgrade CLGL to a HOLD and maintain our DCF-derived TP of $1.42.
Publish date: 06/09/13