The Cords That Bind

Initiate with BUY and Street-high TP of SGD1.29. We initiate coverage on cord blood bank Cordlife with a BUY rating and a Street-high TP of SGD1.29, which offers 47% upside. With a strong platform to expand its product range combined with dominant positions in Singapore, Philippines, Indonesia and a strong presence in Hong Kong, India and China, it is poised to transform into Asia’s infant and maternal healthcare products champion over the next two years, riding the sweet side of both developed and emerging markets.

Regional platform done! Now to widen product scope. With the completion of recent acquisitions of Philippines, Indonesia and India’s operation last week, Cordlife has built a far-reaching platform. Next, we expect it to launch a wider range of maternal and infant healthcare products to better utilise its regional platform, which will drive economies of scale, margins and both top and bottomline growth. Already, it has expanded from just cord blood to include umbilical cords. However, the sky’s the limit and there is great potential to add more products and services that could be immediately earnings accretive.

Accommodative home market, high growth potential in overseas markets. Strong government indirect subsidies coupled with an impregnable competitive position at home put Cordlife in
good stead to grow from strength to strength. Overseas, the completed acquisition of established operations in the Philippines, Indonesia and India, coupled with the high-growth potential of these emerging markets, should be earnings accretive immediately and become a key growth driver over the longer term.

Highly scalable as differentiated model is easily replicated across the region. Cordlife’s tried-and-tested business model, which is built on product differentiation via flexible installment plans, insurance-like protection and patented technologies, can be easily replicated across its overseas operations to improve penetration rate and gain greater market share.

Riding the boom in China. Cordlife’s ambition to increase exposure in China got off to a good start with the recent acquisition of a 10% stake in China Cord Blood Corp (CCBC), and the appointment of its CEO, Jeremy Yee, as an independent director on CCBC’s board. We believe Cordlife could continue to raise its stake in CCBC in the medium term, or even merge with CCBC, as part of its long-term plan.

Undervalued for the potential. At current prices, we believe the market has not fully priced in Cordlife’s favourable market position, strong regional presence, excellent product expansion opportunities, exceptional margins, high competitive advantages and sustainable earnings. As a result, its valuations are still deeply depressed. Our TP of SGD1.29 is pegged at 23x FY14F PER, which is in line with its global peers.