Cordlife Group is a leading Singapore-based private cord blood bank. Established in May 2001, it is renowned as one of the first private cord blood banks to be established in Asia. It currently owns and operates 2 stem cell banks with full processing and cryopreservation storage facilities in Singapore and Hong Kong. With 72% market share in private cord blood banking in Singapore, it is the largest private player, and 2^nd largest in Hongkong with 28% market share. It is also present in India, Indonesia and the Philippines through its affiliates. Recently the Companybought 10% stake in China Cord Blood Corporation (CCBC) to expand its geographical reach.

At current trading price ofSGD 1.07, the stock trades at 20.5x PE, 2013E which seems to beundervalued given its promising growth prospects, dominant domestic market position and strong presence abroad. The company's promising business and revenue model coupledwarrant valuation close to local and global peers if not better. A trading range of 2014E, PE of 23-24x should be in line with peers at which the stock price be SGD1.29-1.35, providing an upside of more than 20% at lower end of TP.

Stable and visible revenue stream:

Cordlife group operates in niche segment with in healthcare industry and its business and revenue model provides it steady and visible revenue stream.Cordlife group offers its storage facilities with 2 pricing options. Customer can either pay a definite sum upfront for a definite period of storage, orpay a small amount upfront followed by annual storage charges till the time of storage period. Given that >50% of its customers are under annual payment scheme, the bulk of its revenue has greater stability and visibility.

The group reported a topline of S$23.7m for 9m ending 31^st March 2013, an increase of 11.6% yoy with a bottom line growth of c.43% to S$7m (excluding S$2.7m gain on disposal of associates). The net margin improved by 800bsp to 29.5% (excluding disposal gain).

Ample room for growth:

• The cord blood bankingindustry is yet to evolve and attain maturity and thus provides ample growth opportunities, given thelow penetration rate and high birth rate.
• From 2011 to 2015, the penetration rate in Singapore, Hong Kong and China is projected togrow at CAGR of 9%, 8.5% and 23% respectively. Penetration rate for emerging markets operations in PII, is estimated to grow at a CAGR of 20-35% (DTFAS market research)

Source: Company, Deloitte &Touche Financial Advisory Services

Cordlife's penetration rate in developing markets

Source: Company, Deloitte &Touche Financial Advisory Services

Service diversification to further strengthen market position and profitability

• Cordlife group was the first to introduce the automated processing system in Singapore and Hong Kong. It recently started providing umbilical cord tissue banking services in Singapore.
• The company also intends to grow its services through collaborations, licensing and strategic alliances as opposed to in-house research and development programme. Further, as part of its long term growth plan, Cordlife is exploring the possibility of launching several complementary products related to infant and paediatrician markets which will boost revenue with minimaladditional costs.
• The group can efficiently utilise its established customer base, close connection with medical doctors in the hospitals it works with, and its experienced sales force for further product launch and expansion.

Recent stake acquisition to be positive:

• Recent acquisition of 10% stake in CCBC (China Cord Blood Corporation) provides access to 3 main province in Mainland China namely, Beijing, Guangdong and Zhejiang thus expanding market in addition to strengthening alliance with CCBC.

(Source: Cordlife Group 2Q13 result presentation)

• Further, recently successfulacquisitions in Philippines, Indonesia and India (PII)further strengthen the company's footholdin the Asia market and are expected to be EPS accretive.

Strong Balance sheet and sound financial position:

• CG's balance sheet remains healthy as at 9M 2013, the company ends up with total interest bearing debt amounting to S$5.4m. This is matched with S$7.2m of cash and equivalent, and a further sum of S$17.8m as fixed deposit. The group remains in net cash position.

• Its balance sheet also showa low gearing ratio of 0.07x at the end of 9M 2013.

• This provides ample of financial resources to tap any attractive growth opportunity.

Healthy return to shareholders:

• Despite of not having any specific dividend policy, CG has committed to distribute at least 25% of profits attributable to shareholders as dividend for FY2012 and FY2013. It has announced an interim dividend of 1 cents per ordinary share to be paid on 5^th April 2013.

(Source: Cordlife Group 2Q13 result presentation)

Price performance

The stock got listed on Singapore exchange in March 2012 with an IPO price of 0.475. Taking current price of S$1.30it has returned c.170%. It has a 52 week range of SDD0.51-1.46and 30 day average volume of 10.6m shares. The table below provide fundamental data on the stock:

The recent uptrend that started in near May 2013 is perhaps led by announcement by the group of entering into purchase sell agreement to acquire assets/affiliates at Australia, Philippines, India and Indonesia.

The stock has recently seen additional coverage by greater number of analyst, most of which have buy/ hold rating for the stock.For serious investors with reasonable risk appetite the stock seems to present a sensible investment opportunity even at this level. Those who already have exposure can continue with their holdings. For fresh investors depending on their risk appetite, any correction in the price should be a good entry point.

Investment Risk:

Regulatory risks

• Any adverse changes in regulatory policies, guidelines or requirements may have negative impact on the industry. For example, a recent change in blood testing requirements by AABB resulted in a cost increase of SGD120 per cord blood unit.
• Further, there could be chances of government banning private storage of cord blood/ tissue (which already happened in Italy and France), or forcing a price cap on storage fee.
• There is also the possibility of the Chinese government barring mainland Chinese women from giving birth in Hong Kong, which may dampen demand and thus profitability.

Technology and alternative medical treatment risks:

• If medical advances enable cheaper or more effective ways to collect and store stem cells, cord blood banking may be made redundant. New medical treatments superior to the use of cord blood in medical treatment may also eliminate the need for cord blood banking.

Reputation risks:

• Any oversightin Cordlife's cord blood banking services or the cord blood banking industry in general could result in bad publicity and will decrease the demand for the company's core service.

Credit risk:

• Cordlife is exposed to delay or default on payments by its customers who are on annual payment options. Nevertheless, the default rates had been only 0.2% of its total customers in FY11.

Foreign exchange risks:

• Given the Cordlife's operations are in countries other than its reporting country's currency, there is significant risk of foreign exchange. With recent 10% stake in CCBC and expansion in mainland Chinathis risk has increased as larger portion of revenue and bottom line is now tied to currency other than S$.

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