Maybank KE Corporate Day: Hosting 9 small/mid-caps which are sector leaders

Excerpts from Maybank Kim Eng's report

WE HOSTED nine Singapore-listed small/mid-cap companies at our SGX/Maybank Kim Eng Corporate Day on 2 Dec 2014. Sixty clients participated in 47 group meetings and six in one-to-one meetings.

Current & future leaders

The companies represented are current leaders in the small-to-mid-cap space or potential future leaders. Most have stamped their leadership in a variety of sectors. In healthcare, Q&M runs the biggest dental chain in Singapore.

Silverlake and CSE are significant players in software and system integration. Silverlake has a substantial market share in core banking software. OSIM and Super have well-known consumer staple and discretionary brands. YuuZoo is an interesting e-commerce company with a social messaging component.

Stock highlights:

» CSE Global (NR). With a high 77% exposure to the oil & gas sector, investors were wary. CSE clarified that downstream, where it operates, would be more insulated. Investors viewed it as a potential takeover target.

» CWT (BUY, SGD1.87). Falling copper prices do not worry management as it is price-neutral. Neither is CWT affected by the current oil-price slump.

» Cordlife (BUY, TP SGD1.30). India could be one of its fastest growingmarkets this year. Company is also rolling out new products while there could be maiden dividends from investee company, CCBC.

» OSIM (BUY, TP SGD2.72). Expect a stronger FY15E despite short term margin pressure from TWG’s store expansion. Its investment in TWG should add a brand with strong growth potential and margins.

» Silverlake Axis (BUY, TP SGD1.40). Potential integration contracts from OCBC-Wing Hang and CIMB-RHB-MBSB could double its order book by end-FY6/15E. Longer term, China and Australia to feature more prominently.

» Super Group (HOLD, TP SGD1.02). Expect a slow initial recovery in FY15E with a stronger pace in 2H15. Sales have started to grow again in core markets.

» Q&M Dental (BUY, SGD0.50). Strongest growth to come from China, after two completed acquisitions. Two more in the pipeline.

» YuuZoo (NR). Virtual shopping mall? Social network? Lottery operator? E-commerce enabler? YuuZoo has it all. For now, however, it has yet to prove its franchising model.

jyee11.14 Jeremy Yee, CEO of Cordlife.
NextInsight file photo.We hosted Mr Jeremy Yee, CEO, Ms Thet Hnin Yi, CFO, and Ms Mitchelle Ho, Financial Controller.

Greater market penetration, new products

Cordlife aims to increase its cord blood storage market share and penetration rate, especially in India. Management has identified India as one of its fastest-growing markets. New sign-ups jumped 3x in 1Q6/15 after more promotions. Revenue will be recognised in 6-9 months’ time, when clients deliver their babies. In Indonesia and the Philippines, Cordlife plans to expand into more cities. Moreover, it wants to roll out new and complementary products such as MetaScreen for umbilical cord tissue storage across the region. It could do this by leveraging its cord blood distribution network.

Premium pricing

Cordlife is able to command premium selling prices through its:

§ Highly recognised AABB accreditation. It was the first Asian cord blood bank to be accredited in 2005.

§ Listing status with transparent financials

§ Transplant track record of 16 cases

§ Position as the only cord blood bank with a strong presence in Asia.

Addressing CB concerns

Management highlighted that CBs were the cheapest way to raise its stake in CCBC, China’s largest cord blood storage provider with monopoly licences in four regions. Without the CBs, its stake of 7.3m shares would be diluted from 10% to 6% upon full conversion of CCBC’s CBs. The CBs it has acquired will raise its stake to 14% on a diluted basis. Aside from benefitting from coupon payments and potential share-price appreciation, its strategic stake will allow Cordlife to harness CCBC’s platform for marketing its products. For instance, Cordlife formed a strategic alliance with CCBC in Mar 2014 to offer its cord tissue storage in China.

Management also addressed CCBC’s corporate-governance issues given that it does not pay dividends despite its cash pile of USD351m. This exceeds its market cap of USD343m. It noted that the auditing of CCBC is rigorous, especially with KKR’s on-site monitoring process. In addition, CCBC could potentially pay dividends in the future, given that Magnum Opus only receives a 7% coupon on the CBs but has to pay a 7% interest on the USD46.5m it borrowed to buy the CBs from Golden Meditech.

Clients’ response: Confident in its growth direction

Clients were impressed with the company’s expansion through complementary products and strong competitive advantages. Management also managed to assuage concerns over its acquisition of CCBC’s CBs.

Full Maybank report here.

Maybank KE Corporate Day: Hosting 9 small/mid-caps which are sector leaders

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