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Cordlife’s 1QFY15 (Jun) core profit of SGD1.7m made up 13% of our estimate. Maintain BUY with a lower DCF-based TP of SGD1.30 (51% upside). While revenue increased on a rise in client deliveries, higher marketing expense to boost long-term growth in India dragged profits lower. We remain positive on its long-term growth story and believe the stock offers significant upside given its 32% drop since August. We reduce our 2015-16 EPS by 15-17% to reflect lower royalty income. |
Revenue growth supported by higher service take-up rate. Cordlife Group’s (Cordlife) 1QFY15 revenue grew 17% YoY to SGD13.3m, aided by increased client deliveries. This accounted for 23% of our estimate. While all key markets registered growth in client deliveries, growth in India was the strongest. In 1QFY15, India accounted for 52% of all client deliveries vs only 42% in 1QFY14.
Jeremy Yee, CEO of Cordlife @ the recent EGM. NextInsight file photo.As highlighted in our initiation report, we continue to remain bullish on the company’s growth potential in under-penetrated markets like India, Indonesia and the Philippines.
Jeremy Yee, CEO of Cordlife @ the recent EGM. NextInsight file photo.As highlighted in our initiation report, we continue to remain bullish on the company’s growth potential in under-penetrated markets like India, Indonesia and the Philippines. Growth results in higher near-term costs. Its lower-than-estimated 1QFY15 profit was a result of higher selling costs incurred as part of advertising expenses in India. Cordlife spent SGD0.5m in 1QFY15 on television advertising in India to ensure that it can position itself well against a relatively larger competitor.
We expect high marketing cost to remain a drag on near-term earnings. Management highlighted that it plans to change its marketing strategy in India starting Jan 2015, which should enable it to significantly reduce marketing costs.
We expect high marketing cost to remain a drag on near-term earnings. Management highlighted that it plans to change its marketing strategy in India starting Jan 2015, which should enable it to significantly reduce marketing costs.
Royalty income disappoints. Royalty contribution from China Cord Blood Corp (CCBC) and Stemlife for the use of Cordlife’s patented cord tissue technology was significantly lower than our estimates. While the sign-up of this service has been encouraging in Singapore, Hong Kong and the Philippines, it has not been the same in China and Malaysia. We lower our 2015-16 EPS by 14-17% to account for lower contribution from associates in the form of profits and royalty income.
Maintain BUY. While we are cognisant of the near-term weakness in earnings, we remain positive on the strong growth potential for its service offering in Asia. Reiterate BUY with a lower TP of SGD1.30 (from SGD1.55).
Full report here.
Recent story: @ CORDLIFE's EGM: Questions on loan repayment, China dream, etc
Full report here.
Recent story: @ CORDLIFE's EGM: Questions on loan repayment, China dream, etc
