Cordlife Group

Company Update
Cordlife Group Ltd
HOLD
Revenue
Gross Profit
2014
49.1
34.9
2015F
56.5
39.5
2016F
65.3
45.7
PATMI
Core PATMI
13.5
9.5
30.4
5.3
9.1
9.1
11.1
11.1
YE Jun (S$ m)
Core EPS (Scts)
Core EPS grth (%)
Core P/E (x)
DPS (Scts)
4.1
1.1
2.0
-49.7
3.5
68.7
4.2
21.8
24.8
2.0
49.3
2.0
29.2
2.3
24.0
2.1
Div Yield (%)
BVPS (Scts)
2.0
33.3
2.0
55.1
2.3
54.7
2.1
56.8
P/B (x)
EV/EBITDA (x)
3.0
26.9
1.8
24.6
1.8
34.8
1.8
27.1
2013
2014
2015F
2016F
73.0
27.3
17.4
11.2
NC
71.0
10.7
21.5
15.9
NC
70.0
16.2
6.3
3.2
62.0
70.0
17.0
7.4
3.7
54.8
Key Operating Statistics
Gross Margin (%)
Core Net Margin (%)
ROE (%)
ROA (%)
Net Gearing (%)
Stock Data
259.3
Issued Shares (m)
261.9
Market Cap (S$m)
$1 / $1.29
52 week lo / hi
0.5m / $0.6m
Ave Daily Traded Vol / Val (3-Month)
67.8%
Free Float
Wells Spring Pte Ltd
11.1%
Major Shareholders
Bonvests Holdings Ltd
10.3%
12-Month CLGL SP (Blue) vs. FSSTI
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
3740
3620
3500
3380
3260
3140
3020
2900
Source: Bloomberg
Renfred TAY
[email protected]
+65 6236 2557
(Previous: S$1.43)
OUR THOUGHTS BEFORE THE EGM
2013
34.7
25.3
Financials
Last Close
: S$1.010
Monday,
24 October
2011
Fair Value : Under Review
(Under Review)
03 November 2014
CLGL SP; CORD.SI
Recap on the deal. CGL previously announced its
intention to purchase convertible bonds of China Cord
Blood Corp (CCBC), for US$44m (US$19m premium to
the US$25m principal), from Golden Meditech (which
owns 42% of CCBC). The CBs were issued on 3 Oct
2012 and will mature on 3 Oct 2017; it will pay a
coupon of 7% p.a. In addition to the purchase of the
CBs, CGL will also be providing a loan of up to
US$46.5m to Magnum Opus, an SPV 100% owned by
Yuen Kam (Golden Meditech’s Chairman and CEO,
and CCBC’s Non-executive Chairman) to purchase the
remaining 50% of the CB issue (with the CBs as
collateral), at an interest rate of 7%. We were briefed
during our last analyst meeting that the key benefits of
the deal were: 1) Access to the Chinese market
through CCBC, 2) Interest rate carry that CGL could
stand to make (but CGL is not supposed to be a
finance company). An EGM is scheduled on
Wednesday, 5 Nov 2014 at 10am for shareholders to
decide if CGL should go ahead to complete this deal.
Way too much risk. As expressed in our last note, we
felt that the risks quite clearly outweigh the benefits.
CGL’s shareholders’ equity stands at S$141m at
the end of FY6/14, while the whole deal requires close
to S$120m to fund it. Risks that could wipe out a
significant portion of shareholders equity include: 1)
Magnum’s ability to repay the loan principal and
interest payments, 2) The CBs going out-of-the-money
at expiration, which implies booking of losses.
Refinancing or repayment of debt could also be an
issue for CGL. We believe CGL received the short end
of the deal, with the biggest beneficiaries being,
Magnum (low risk financing secured through the CBs,
which could still go out-of-the-money) and Golden
Meditech (immediate de-risking of its balance sheet
and booking of big gains from the sale of these CBs to
CGL and Magnum). In the case where the CBs are out
-of-the-money, we expect Magnum to default on
the loan provided by CGL (since the loan is secured
against the CBs) leaving CGL with only US$50m from
its redemptions on the CBs; CGL could effectively lose
about US$40m (about S$50m). Things could be even
worse if CCBC defaults.
Red flags at CCBC? We also spotted some red flags
with CCBC that should alarm investors of Chinese
companies in general. A quick scan of its financials
showed a cash horde that is unusually high (and
growing) (Net cash of US$208m vs market
capitalisation of US$365m) and no dividends paid
since listing, for a company with a supposedly low
capex business model. During the last analyst meeting,
Please see important disclosures at the end of this publication
Cordlife Group Ltd
Monday, 03 November 2014
CGL’s CEO mentioned that this deal will allow CGL access into China
through CCBC. However, there were no indications within CGL’s circular or
announcements that suggests an agreement between CGL and CCBC
would be signed if the proposed deal were to be completed; rightly so
because CCBC was never party to any of these transactions. Without any
form of legally binding agreement and benefit to CCBC, we do not see any
incentive for CCBC to take CGL into China.
CGL had hoped to avoid this EGM initially by treating this whole deal as
two distinct deals (deal sizes less than 20% of market cap need not go
through an EGM). However, SGX ruled that the two deals must be treated
as one and thus required CGL to hold an EGM. While the EGM will be held
only on 5 Nov, the company had since issued $120m of debt. Prior to the
announcement of the CB deal, we had not observed any need for such high
level of financing for its ongoing ops, especially since the private share
placement in October last year, which raised S$33.5m.
China dream, could turn into a nightmare. We are concerned that CGL
could be betting the house on its China dream. We believe the risks quite
clearly outweigh the benefits and it looks like the deal is structured against
CGL’s favour. We also observed many questionable practices relating to
corporate governance amongst the parties named in the deal. We are
placing our recommendation and TP under review, pending the outcome of
the EGM and the upcoming 1Q6/15 results due on 11 Nov 2014.
AmFraser Securities Pte Ltd
Page 2
Cordlife Group Ltd
Monday, 03 November 2014
Summary of Financials
YE 30 June
INCOME STATEMENT $'000
Revenue
2013
2014
2015F
2016F
2017F
30,275
34,702
49,087
56,459
65,293
74,982
Cost of sales
8,743
9,373
14,229
16,938
19,588
22,495
Gross profit
21,532
25,329
34,858
39,521
45,705
52,488
Operating expenditure
16,073
17,998
27,121
31,053
34,605
39,741
EBITDA
6,140
8,096
9,245
9,899
12,461
14,051
Depreciation and amortization
681
765
1,508
1,430
1,362
1,304
Interest income
157
492
288
5,234
5,246
5,227
2
46
217
4,628
4,628
4,628
2,091
2,753
-2,350
1,000
1,000
1,000
0
2,729
0
0
0
0
75
28
1,273
1,018
1,018
1,018
Interest expense
Share of profit from assocs/ JVs
Gain on disposal of associate
Other income
Other expenses
Profit before tax
Income tax (benefit)/expense
Non-controlling interests
PATMI
Number of shares ('000)
Earnings per share (cents)
Dividend per share (cents)
0
0
0
0
0
0
7,780
14,559
31,854
11,273
13,736
15,364
854
1,075
1,474
2,142
2,610
2,919
0
0
0
0
0
0
6,926
13,484
30,380
9,132
11,126
12,445
171,730
232,592
256,520
264,103
264,103
264,103
4.0
5.8
11.8
3.5
4.2
4.7
3.8
2.0
2.0
2.3
2.1
2.5
Book value per share (cents)
41.4
33.3
55.1
54.7
56.8
59.0
Sales per share (cents)
17.6
14.9
19.1
21.4
24.7
28.4
BALANCE SHEET S$'000
2012
2013
2014
2015F
2016F
2017F
12,945
7,986
32,643
13,305
20,709
37,758
9,249
13,204
13,944
15,912
18,236
20,786
Cash and Cash Equivalents
Trade and Other Rec
Inventory
417
435
645
847
979
1,125
Others current assets
529
1,627
2,666
2,343
2,555
2,788
Total Current Assets
29,140
27,086
112,518
95,026
105,100
115,798
6,052
7,606
8,409
7,979
7,617
7,313
Property, Plant, Equipment
Intangible assets
35
146
1,941
1,936
1,931
1,926
17,664
27,965
16,819
16,819
16,819
16,819
0
0
0
0
0
0
LT trade receivables
24,258
38,743
45,961
48,784
52,049
55,798
Other non-current assets
13,214
11,713
0
55,000
55,000
55,000
Total Assets
90,363
120,364
190,707
285,603
298,574
312,713
Trade Payables
2,781
7,505
8,887
5,081
5,876
6,748
Short term debt
111
271
4,448
4,448
4,448
4,448
2,453
5,926
8,402
98,402
98,402
98,402
Total Common Equity
71,159
77,478
141,292
144,348
149,995
155,764
Total Liabilities and Equity
90,363
120,364
190,707
285,603
298,574
312,713
Investment in associate
Investment in subsidiaries
Non-current debt
AmFraser Securities Pte Ltd
2012
Page 3
Cordlife Group Ltd
Monday, 03 November 2014
CASHFLOW STATEMENTS $'000
2012
2013
2014
2015F
2016F
2017F
Net Income
6,926
13,484
30,380
9,132
11,126
12,445
-189
166
-210
-202
-133
-145
Change in inventories
Change in trade and other receivables
-3,977
-10,744
-8,143
-4,468
-5,801
-6,531
Change in trade payables
295
1,838
-587
-3,806
795
872
Change in LT payables
369
0
1,954
0
0
0
2,901
9,442
1,293
5,646
6,529
7,498
-1,748
-934
-1,264
-2,142
-2,610
-2,919
5,978
8,346
3,855
6,126
12,260
13,843
Change in deferred revenue
Income tax paid
Operating Cash Flow
(Purchase)/Disposal of PPE
-2,363
-1,729
-1,627
-1,000
-1,000
-1,000
Acquisition of associated company
0
-25,701
-8,125
0
0
0
Acquisition of subsidiaries
0
-1,556
-3,158
0
0
0
-1,500
0
0
-55,000
0
0
Purchase of convertible bond
Interest Received
57
332
115
5,234
5,246
5,227
-20,038
-10,057
-13,402
-104,766
5,246
5,227
29,700
0
33,547
0
0
0
Proceeds from interest-bearing borrowings
1,837
3,828
6,900
90,000
0
0
Repayment of interest-bearing borrowings
-91
-195
-247
0
0
0
-2
-46
-217
-4,628
-4,628
-4,628
Dividends Paid
-4,654
-6,513
-5,338
-6,076
-5,479
-6,676
Cash flow from financing activities
23,010
-3,248
34,204
79,301
-10,102
-2,021
3,995
12,945
7,986
32,643
13,305
20,709
12,945
7,986
32,643
13,305
20,709
37,758
Cash flow from investing activities
Equity Raised / (Bought Back)
Interest Paid
Beginning Cash
End Cash
AmFraser Securities Pte Ltd
Page 4
Cordlife Group Ltd
Monday, 03 November 2014
KEY RATIOS
2012
2013
2014
2015F
2016F
2017F
71
73
71
70
70
70
Profitability
Gross Margin (%)
EBITDA Margin (%)
20
23
19
18
19
19
Net Margin (%)
23
39
62
16
17
17
ROE (%)
10
17
22
6
7
8
ROA (%)
8
11
16
3
4
4
Revenue (%)
18
15
41
15
16
15
Gross profit (%)
18
18
38
13
16
15
Growth (Y-o-Y)
EBITDA (%)
-17
32
14
7
26
13
Net Income (%)
-18
95
125
-70
22
12
Debt/EBITDA
0.42
0.77
1.39
10.39
8.25
7.32
Total Debt/Equity
0.04
0.08
0.09
0.71
0.69
0.66
-0.15
-0.02
-0.14
0.62
0.55
0.42
104
127
96
96
96
96
Days in Inventory
17
17
17
18
18
18
Days in Payables
116
292
228
110
110
110
Financial Structure
Net Gearing
Operational Efficiency
Days Sales in Receivables
Market Valuation
Price / Earnings (x)
25.0
17.4
8.5
29.2
24.0
21.4
Price / BV (x)
2.4
3.0
1.8
1.8
1.8
1.7
Price/ Sales (x)
5.7
6.8
5.3
4.7
4.1
3.6
EV / EBITDA (x)
23.7
26.9
24.6
34.8
27.1
23.4
AmFraser Securities Pte Ltd
Page 5
Cordlife Group Ltd
Monday, 03 November 2014
AmFraser Research recommendations are based on a Total Return rating system, defined as follows:
BUY: >15% total return over the next 12 months
HOLD: -15% to +15% total return over the next 12 months
SELL: <-15% total return over the next 12 months
Total Return includes share price appreciation (depreciation) + dividends
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