- Change of Chief Executive Officer resulting in down trend of stock price
- Positive market trends which will benefit the company in the long run
- Substantial market share in Asian regions
- Abundance of possibilities for revenue growth
1. Cordlife Group Limited (P8A.SI)
Last Closed Price: $1.20
52 Week Low: $1.175
Source: Yahoo Finance (Sep 9,2016)
2. What Business Cordlife Group (P8A.SI) Is In
A consumer healthcare company founded in Singapore which provides consumer healthcare products and services to the general public.
Products & Services:
- Cord Blood Banking
- Cord Lining Banking
- Metascreen (Detection of Metabolic Disorders)
- iGene – Non Invasive Prenatal Test
- Eyescreen (Detection of Vision Problems)
3. What Happened to Cordlife Group Ltd (P8A.SI) Recently?
Cordlife’s Chief Executive Officer, Jeremy Yee abruptly resigned in March this year.
The board felt that Yee did not perform up to standard as he failed to enhance the company’s earnings. Additionally, Dr. Goh Jin Hian, Independent Director believed that Yee’s contract term which granted him 10% of Cordlife’s profit was unreasonable and suggested for a renegotiation. As the board and Yee failed to reach agreements in the renegotiation of his contract, he was told to resign or be terminated and Yee chose the former.
After Yee left, Cordlife named Ms. Tan Poh Lan, Chief Operating Officer as a temporary in-charge who was responsible for growing the company’s business through relationships in the South-East Asian Region.
Cordlife then appointed Dr. Wong Chiang Yin as the Group’s new CEO and Executive Director on July 2016 who was responsible for the oversight of all aspects of the company’s business functions.
4. Financial Highlights
Source: SGX Stock Facts
Revenue: Both Total revenue and Gross Profit is on an uptrend. Total revenue increased 3.55% to $59.6M from last year due to Cordlife’s expanding customer base while Gross Profit had a slight dip from $40.0M to $39.46M. Net Income decreased tremendously from $32.46M to $13M due to interest expenses resulting from debt to finance expansions in the region.
Source: SGX Stock Facts
Liquidity: Total Long-Term Debt decreased from $124M to $76M though it’s still considered high as their latest net income is only $13M. Even if we multiplied by 5 is $65M, it is less than $76M of debt which depicts that the company has pretty high debt. However, a good sign is that Current Ratio is at 5.24, which indicates that the Group has 5.24x more current assets than current liabilities.
4.1 Key Statistics
Price/Book Ratio: 2.36
Cordlife’s P/B Ratio of 2.36 is considerably higher than the industry average of 1.4, indicating that the share may be slightly overvalued with it’s current share price compared to the equity of the company.
Price/Earnings Ratio: 23.9
Cordlife’s P/E Ratio of 23.9 is a little on the high side caused mainly due to a decline in earnings. As earnings has been used for expansion and market penetration projects. However, it is still lower than the industry average of 26.3.
5. Industry Overview
5.1 Positive Market Trends
High growth potential in China: China remains as one of the fastest soaring healthcare markets in Asia. The country’s healthcare market expands at a rapid rate with ample room for further expansion. China’s growing middle-class population, indicative of a progressively larger customer pool for cord blood banking operations should see a rise in penetration rate.
Increasing birth rate in Singapore: In Singapore, we anticipate that operations will benefit from an increasing birth rate, driven by favourable government policies. As part of the government’s incentive to boost the country‘s birth rate, several pro-family measures have been implemented such as an extra S$2,000 Baby Bonus and an additional S$1,000 Medisave grant for all babies born after January 1 2016. I am optimistic that these measures will be positive for Singapore‘s birth rate, benefitting CordLife as a whole.
Regional business expansion: CordLife will continue to be on track to expand businesses by tapping on developing markets in India, Indonesia and the Philippines. The growing affluence of the middle income population and their interest in more diverse healthcare options will help drive further growth.
CordLife will continue to benefit from these positive trends, thus achieving robust growth in both revenue and new client businesses in the coming years.
Singapore – Stemcord is the only competitor to Cordlife in private cord blood banking. However, Cordlife is able to stay ahead of Stemcord due to the adaptation of the latest technologies.
Hong Kong- There are two other major competitors of Cordlife in Hong Kong, which are Cryolife and Healthbaby. However, Cordlife is still able to distinguish itself from its’ competition and maintains 27% of the market share.
China- Cordlife is able to establish a strong foothold in China through collaboration with CCBC, which operates 4 out of 7 licensed cord blood banks in China. CCBC is now responsible for 62% market share in China.
India, the Philippines and Indonesia- Cordlife has the largest market share of private blood banking in the Philippines and Indonesia and the 3rd largest market share in India.
5.3 Key Risk
Industry Risk: There is a possibility that other treatments may be discovered. Unless CordLife diversifies its products and services to be less reliant on cord blood banking, a discovery could potentially undermine the profitability of the entire industry because cord blood banking would be rendered irrelevant.
Based on the declining stock price since February this year, the investor sentiment for Cordlife has been in a negative trend. This was largely due to the recent news when the previous CEO suddenly resigned which caused uncertainty surrounding the management of the company. However, after the new CEO has taken over, business operations has still largely been the same, this time with more focus on expansion and market penetration projects. I believe this company will grow tremendously in the future due to this 2 reasons:
- Abundance of possibilities of revenue growth: Birth rates in less mature markets such as India, Indonesia and Philippines have been increasing healthily. As the potential markets grow and people are more likely to be exposed to Cordlife’s products, Cordlife’s customer base is expected to increase significantly.
- Establishing Cordlife’s access to growing China market: By collaborating with CCBC, Cordlife can better tap on growing China market. Cordlife had recently signed licensing agreements and launched cord tissue banking services with CCBC. Cordlife also plans to leverage on the CCBC sales platform to sell its new healthcare services (maternity/delivery screening tests). Cordlife can benefit from economies of scale by selling diversified products to the progressively growing customer pool.
My stand is to hold. Although I’m confident Cordlife will be bullish in the future, my take is to keep a close eye on its financials before taking a long position.
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Disclaimer: Please note that all information stated in this article is just for education purpose only and should not be used as any form of recommendation or advice.