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Sunday, 12 October 2014

Cordlife: Analysis

21:48 Posted by szcszc No comments
Recently, I have stumbled across a healthcare-related company that is listed on the Singapore Exchange. It appeared on my stock screener and after investigating its financials, I decided to write an opinion of its performance.

Cordlife is a company that stores cord blood. Scientifically proven, cord blood is important, even long after a baby’s birth and can provide a source of stem cells should the need ever arise for a stem cell transplant. Hence, there are numerous health benefits that can be used to treat future diseases.

From its annual reports, the future growth of Cordlife proves to be exciting. It is currently expanding in both scope and scale, improving its future streams of income.

Scope
  1. Cordlife has entered into a new licensing agreement with StemLife to explore and develop umbilical cord lining related new services based on cellular technology in Malaysia. This is in addition to the potential synergies of working with StemLife to cross-sell services and products in Malaysia and Thailand. It has also secured new licensing agreements to improve its revenue stream.
  2. It has also introduced an advanced non-invasive metabolic screening service known as Metascreen™.
Scale
  1. Cordlife has expanded operations in India, the Philippines, and Indonesia and invested 31.81% interest in Malaysia-listed StemLife. These should start to contribute positively to the Group’s bottom line in FY2014.
  2. Cordlife has entered into a convertible note issued by CCBC which can  potentially raise its interest in China’s largest cord blood banking operator to 17.79%. This can also serve as an additional income stream from the annual coupon payments. 
Financials

  1. Compared to its peers, Cordlife is also able to enjoy higher margins and a wider product reach due to its strategic alliances. 
  2. Being a cord blood company, it depends on its assets to generate income. Hence, to judge its performance, we can use return on assets ratio. This can be a risk factor as the ratio has been decreasing at a steady trend since 2010 from 10.37% to 3.60%. This could be due to it increasing its assets while its income varies. However, this would stabilize later as currently the cord blood banking is still a relatively new and niche industry. Furthermore, Cordlife can obtain more market share using the first mover advantage.
  3. Its debt levels and liquidity ratios are also of good standards. Its current and quick ratios have steadily increased from 1.00 to 3.06 and 0.97 to 2.93, from 2010 to 2014 respectively. Its debt ratio, though increasing from 2010 to 2014, still remains at a healthy level of 9.00%.

Risks

  1. Relatively new and niche industry where customers need to be educated to realize its benefits. Hence, advertising costs could prove to be a concern.
  2. The sales channels in China is heavily reliant on its China allies.
  3. Its assets turnover ratio is decreasing, indicating that it is not efficient in deploying its assets to generate a revenue.
With these reasons, I suggest a BUY on this counter, especially since its present stock price is at a downtrend. Though there are inherent risks in its expansion strategies, I have faith in its management in mitigating and managing the company.

Note: Currently, I do not have any vested interest in the company.

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