■ 1Q16 missed on lower revenue growth and higher marketing expenses outside India. Cut FY16-18 EPS by 19-24%.
■ Special DPS of SGD0.13 declared. Balance of SGD62m to fund accelerated market expansion and new products.
■ BUY, SOTP TP of SGD1.53. Raise valuation target from 28x to 35x for stronger leverage from cashed-up balance sheet.
1Q16 missed at 14% of FY06/16E. 10% revenue growth tracked below our 17% full-year growth forecast due to lower pricing in India vs Singapore despite strong volume growth. Some Singapore deliveries also slipped into 2Q. Part of this could be due to timing issues. The main variance came from higher marketing costs that fell in India, but rose in Philippines and Indonesia as Cordlife raised A&P there to boost signups. We lower FY16-18 EPS mainly for this. On the bright side, it declared a SGD0.13 special DPS (c.40% of its CCBC sale proceeds).
What’s Our View?
With a reinforced cash pile of almost SGD100m (SGD62m from CCBC sale after paying the special dividend on top of the SGD30 cash projected for FY16E), Cordlife can now speed up its expansion plans. These include new products such as children eye testing and non-invasive pre-natal testing that it could channel into its current database of >100k cord blood storage customers. It can also embark on more JV and M&A activities to fuel growth. Expect more catalysts from such future initiatives in coming months.
For the all-important China market, selling its CCBC stake is not the end. We expect its China strategy to be made known in coming months. It is likely to introduce cord tissue storage and metabolic screening services, perhaps with a JV partner who can help it quickly penetrate the market. The China baby market is expected to boom with the recent relaxation of the one-child policy. Mother and Baby products were among the top-5 best-selling products in Alibaba’s Singles Day sale. We have yet to factor growth potential from these initiatives into our forecasts. (Read Report)
Source : Maybank Kim Eng Research