2012-06-29 cord.si (s&p capital i) cordlife initiation

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June 29, 2012

Cordlife Group Initiation Banking for the future

Strong market position in Singapore and Hong Kong. Cordlife is the

market leader in private cord blood banking in Singapore and is

among the top three players in Hong Kong. The group’s strong market

position and reputation will enable it to benefit from growing demand

for cord blood banking services.

Expanding prospects. Cordlife plans to leverage on its established

brand and market leadership to grow its position further in existing

markets. To this end, it will intensify marketing activities to promote

awareness towards the benefits of cord blood banking and will

increase its capacity through new proposed headquarters and

facilities at Yishun A’Posh Bizhub. The company also intends to

diversify into complementary services such as offering umbilical cord

tissue banking in Singapore and will grow through accretive

acquisitions in selected markets.

Higher penetration rate to drive industry growth. While the number

of resident births in Singapore and Hong Kong are expected to remain

stable over the next few years, the deepening of penetration rates in

both the markets will drive demand for cord blood banking.

Higher revenue for 9MFY12 (Jun.), margin under pressure.

Cordlife’s 9MFY12 net profit declined to SGD4.6 mln (-25.4%YoY)

mainly a result of: (i) lower gross margin attributed to higher cost of

testing brought by a change in the AABB standards; and (ii) higher

administration costs from IPO and director fees. The group announced

an interim net DPS of SG1.8 cents and a special DPS of SG0.2 cents.

Key Fundamentals

FYE Jun. 30 Jun-09 Jun-10 Jun-11Revenue 22.6 28.2 25.7 EBIT 7.1 8.4 7.2 EBITDA Margin % 32.6 31.3 30.3 Net Income 6.2 8.3 8.5 Basic EPS (SG cents)* 2.66 3.55 3.64 Price/Earnings (x) 19.4 14.5 14.1 EPS Growth % N.A. 33.7 2.47 DPS (SG cents) N.A. N.A. N.A.Dividend yield % N.A. N.A. N.A.Price/Book value (x)* 4.45 3.63 2.95 Return on equity % N.A. 27.6 23.0 Return on assets % N.A. 16.3 14.8 Total Debt:Equity % 3.8 2.7 2.1 Source: Company data, S&P Capital IQ *Based on 232.7 mln post IPO shares in issue

GICS: Healthcare/Healthcare Equipment and Services

Business Summary: Cordlife Group Ltd, an investment holding company, provides cord

blood banking and umbilical cord tissue banking services.

Country of Incorporation: Singapore

Head Office Location: 61 Science Park Road, No. 05-16/17/18, The Galen Singapore

Science Park II, Singapore 117525.

Place of Operation: Singapore, Hong Kong and Shenzhen

Website: www.cordlife.com

IR Contact: Ms. Dolores Phua | [email protected]

| +65-6534 5122

CURRENT PRICE:

SGD0.515

Lau Seu Yee/Lee Wee Sieng

Equity Analyst

65 6239 6391

[email protected]

[email protected]

Key statistics

52-week Price Range 0.80 / 0.43Avg Vol - 12 months ('000 shares) 2,232.5Price performance (%) - 1 month 15.7

- 3 month N.A.- 12 month N.A.

No. of Outstanding shares (mln) 232.7Free Float (%) 61.6

Market Cap (SGD mln) 119.8Enterprise value (SGD mln) 88.2

Major shareholders (%)China Stem Cells (East) Co Ltd 10.5

City Challenge Global Ltd 9.4Coop International Pte Ltd 8.8

Source: Company data, S&P Capital IQ

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June 29, 2012 Cordlife Group Ltd

Share Price Performance

Cordlife Group Share Price Chart

Source: S&P Capital IQ

There is limited share price history since Cordlife was recently listed (on Mar. 29,

2012). As such, we can only compare its one-month share price performance with

the STI and its peers.

Comparative Performance

Cordlife GroupFTSE Straits Times Index

China Cord Blood Corp. Stemlife Bhd Bionet Corp.

1 Month 15.73% 2.14% -1.14% 5.95% 26.91%3 Month N.A. -5.61% -6.81% 56.14% 13.29%6 Month N.A. 6.77% 20.37% 56.14% 22.24%Source: S&P Capital IQ

Share Price Performance Details

Current Price 0.515 52-week Hi/Low 0.80/0.43 10-day Avg Volume (mln) 4.10427 Price 1 Month Ago 0.445 1 Month Price Performance 15.73% Price 3 Months Ago N.A. 3 Month Price Performance N.A. Price 6 Months Ago N.A. 6 Month Price Performance N.A. Price 12 Months Ago N.A. 12 Month Price Performance N.A. Market Capitalization (SGD mln) 119.8 Beta N.A.


0.40

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Price 30 Day Moving Average

0306090120150180

29‐Mar 8‐Apr 18‐Apr 28‐Apr 8‐May 18‐May 28‐May 7‐Jun 17‐Jun 27‐Jun

Volume Vol ('mln)

Price (SGD)

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Financial Performance

Recent interim performance: Cordlife’s 9MFY12 (Jun.) net profit dropped 25.4%

YoY to SGD4.6 mln in spite of 14.2% YoY increase in total revenue. The higher

revenue was attributed to: (i) an increase in the provision of cord blood banking

services driven by a rise in the number of client deliveries, from about 4,900 in

9MFY11 to 5,300 in 9MFY12; and (ii) provision of new cord tissue banking services

in Hong Kong which commenced in March 2011.

The group’s profitability was however, weakened by a lower gross margin of

68.8% (-2.1%-pts) as a result of increase in cost of testing brought about by a

change in the AABB standards. In addition, margins were affected by higher

administrative expenses (+76.8% YoY) due to IPO expenses and increase in

headcount and director fees. This was partially offset by higher associate’s

income of SGD1.4 mln (+32.3% YoY) due to the growth of Guangzhou Tianhe

Nuoya’s business as new customers signed up each year.

Cordlife’s balance sheet remains healthy as at 9MFY12 with minimal total debt to

equity ratio of about 3%. As at end-9MFY12, total borrowings increased to about

SGD2.0 mln (from SGD0.8 mln end-FY11). Given this is matched by a healthy cash

& cash equivalents of SGD33.6 mln (an increase of 742% from FY11 level), the

group remains in net cash position in 9MFY12. Operating cash flow remains

positive while listing proceeds help add to the overall increase in cash and

equivalents. The additional loan drawn down is to finance the A’Posh Bizhub

property which is presently under construction.

Detailed Profit & Loss

SGD mln Fiscal Nine Months Ending Mar-12 Mar-11 YoY (%) Revenue 21.3 18.7 14.2 Cost of sales (6.6) (5.4) 22.5 Gross profit 14.7 13.2 10.8 Gross profit margin 68.8% 70.9% Other operating income 0.1 0.3 (72.0) Selling and marketing expenses (4.9) (4.2) 16.6 Administrative expenses (6.9) (3.9) 76.8 Profit from operations/EBIT 2.9 5.4 (45.8) EBIT margin 13.7% 28.8% Share of results in associate 1.4 1.1 32.3 Finance income 1.0 0.8 29.5 Finance costs (0.0) (0.0) (97.5) Profit before tax 5.4 7.2 (25.4) PBT Margin 25.3% 38.7% Income tax (0.8) (1.0) (25.1) Effective tax rate 14.3% 14.3% Net profit attributable to equity holders 4.6 6.2 (25.4) As reported EPS (SG cents) 1.98 2.66 (25.4) Share capital (mln) 232.7 232.7 Weighted share capital (mln) 232.7 232.7 Source: Company data, S&P Capital IQ Research

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Income Statement (SGD mln)

FYE June 30 2009 2010 2011 Total Revenue 22.6 28.2 25.7 Growth Over Prior Year N.A. 24.7% -8.8% Gross Profit 16.4 20.5 18.3 Margin % 72.6% 72.8% 71.1% EBITDA 7.4 8.8 7.8 Margin % 32.6% 31.3% 30.3% EBIT 7.1 8.4 7.2 Margin % 31.4% 29.9% 28.1% Earnings from Cont. Ops. 6.5 8.4 8.5 Margin % 29.0% 29.9% 33.0% Net Income 6.2 8.3 8.5 Margin % 27.4% 29.4% 33.0% Basic EPS* 2.7 3.6 3.6

Key Growth and Fundamental Ratios

FYE June 30 2009 2010 2011 EPS Growth (%) N.A. 33.7 2.6 Sales Growth (%) N.A. 24.7 -8.8 Asset Turnover (x) N.A. 0.6 0.5 Inventory Turnover (x) N.A. 32.9 31.1 Receivables Turnover (x) N.A. 3.4 3.6 Effective Tax Rate (%) 15.2 15.4 14.7 Total Debt to Equity (%) 3.8 2.7 2.1 Interest Coverage (x) 283.5 183.0 167.7 Quick Ratio (x) 1.8 0.9 1.4 Current Ratio (x) 2.1 1.0 1.6 Payout Ratio (%) 0.0 0.0 0.0 Debt to Capital (%) 3.7 2.6 2.0

Balance Sheet (SGD mln)

FYE June 30 2009 2010 2011 Current Assets 24.5 21.0 12.9 Fixed Assets 0.8 2.0 4.3 Other LT Assets 17.5 35.8 38.2 Total Assets 42.7 58.8 55.4 Current Liabilities 11.8 21.2 8.0 Total Liabilities 14.5 25.8 14.8 Share capital 25.7 25.7 25.7 Shareholder's Equity 28.3 33.0 40.6 Cash and Cash Equivalents 7.0 8.2 4.0 Total Debt 1.1 0.9 0.8 Net Cash/(Debt) 5.9 7.3 3.2

Cash Flow (SGD mln)

FYE June 30 2009 2010 2011 Cash from Operations 3.8 8.3 8.0 Capital Expenditure (0.4) (1.6) (3.1) Cash from Investing (3.2) (16.2) (4.4) Total Debt Issued 1.9 9.5 5.4 Total Debt Repaid (0.6) (0.0) (12.6) Cash from Financing 1.3 9.5 (7.3) Change in Cash 2.0 1.4 (3.3) Cash flow per share (SG cents)* 1.6 3.6 3.5 Source: Company data, S&P Equity Research estimates * Based on 232.7 mln post IPO shares in issue

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Industry Characteristics and Outlook

Summary: Cord blood banking is a consolidated industry in Singapore and Hong

Kong (Cordlife’s two key markets) dominated by a few key players and has

relatively high entry barriers. Demand for cord blood banking is dependent on: (i)

number of births and (ii) public acceptance of cord blood banking. The number of

births for Singapore and Hong Kong residents has been relatively stable in the

past five years and will likely remain flat in the next few years. The key

uncertainty in the Hong Kong market lies with a potential ban in mainland PRC

expectant mothers giving birth in Hong Kong. Nevertheless, the growth in cord

blood banking is expected to be driven by an increase in penetration rate in the

respective markets helped by increasing public acceptance of cord blood banking.

Brief description of cord blood banking: Cord blood banking involves the

processing, testing, cryopreservation and storage of umbilical cord blood which

is collected at birth. Stem cells from cord blood can be used to treat diseases

such as leukaemia, cerebral palsy, blood and immune system disorders.

Key revenue drivers: Cordlife’s revenue is mainly driven by its storage volume of

cord blood banking which is determined by: (i) number of births; (ii) penetration

rate of cord blood banking; and (iii) its market share.

The number of new births in a country will directly dictate the overall market size

of cord blood banking industry in the country. In Singapore, the number of births

was relatively stable in the past five years averaging 39,301 (CAGR of 0.7% during

2006-2011). Going forward, Deloitte & Touche Financial Advisory Services

(DTFAS) expect the Singapore births growth to remain fairly flat. In Hong Kong,

the number of births has been increasing at a steady rate (CAGR of 7.8%) during

2006-2011, growing to 95,400 in 2011 from 65,600 in 2006. The growth in births

was driven by an influx of mainland PRC expectant mothers which increased to

43,982 in 2011 from 26,132 in 2006. In recent news, the chief executive-elect

proposed a ban on mainland women giving birth in Hong Kong from 2013 which

may adversely affect the potential market for cord blood banking in Hong Kong.

In contrast, the annual birth numbers among Hong Kong residents have been

relatively stable, ranging from 43,000 to 49,000 in the past few years and is

expected to remain stable over the next few years.

Singapore and Hong Kong total live births and YoY growth (2006-2011)

Source: Singapore Department of Statistics, Census and Statistics Department – Hong Kong SAR

Singapore

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

2006 2007 2008 2009 2010 2011-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Total Births

Total Births YoY

Hong Kong

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2006 2007 2008 2009 2010 2011-12.0%

-9.0%

-6.0%

-3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

Total Births

Total Births YoY

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Penetration rate of private cord blood banking is measured as annual incremental

units of cord blood stored in private banks divided by annual number of new

births. Factors influencing the penetration rate in a particular market include: (i)

public awareness and acceptance; (ii) favorable regulatory environment and

Government subsidies; and (iii) cord blood applications and potential uses.

According to DTFAS, Singapore is a relatively mature cord blood banking market

with a penetration rate of 24% in 2010 and a CAGR of 16% during 2007-2010. The

strong CAGR was partly due to a government subsidy of 50% of the collection fee

through “child development co-saving” scheme. Looking forward, DTFAS expects

penetration rate of private cord blood banking market in Singapore to grow to

38% in 2015 with a CAGR of around 9% for 2011-2015.

In Hong Kong, the penetration rate was estimated to be 11.5% in 2010 and a

CAGR of 15% during 2007-2010. DTFAS projected penetration rate to increase to

20.6% in 2015 with a CAGR of 10% for 2011-2015, helped by higher visibility of

cord blood banking.

Singapore and Hong Kong Penetration Rate and Incremental Storage Volume in

Private Sector (2007-2015F)

Source: DTFAS Market Research

While total new births combined with penetration rate will determine the size of

cord blood banking industry in the respective country, Cordlife’s market share

will determine the firm’s storage volume which directly drives its revenue stream.

Cordlife had an estimated market share of around 62% and 28% of the Singapore

and Hong Kong private cord blood banking market respectively in 2010.

Competitive Landscape and Pressure

The cord blood banking industry in Singapore and Hong Kong is consolidated and

has relatively high entry barriers such as cord blood banking licensing, reputation

and networking with hospitals. In Singapore, there are only three cord blood

banks: one public (Singapore Cord Blood Bank) and two private (Cordlife and

StemCord). Both the private blood banks began operations in Singapore in the

early 2000s. Cordlife is the larger player with market share of 62% and storage

capacity of 60,000 units. StemCord has market share of 38% and storage capacity

of 40,000 units.

Singapore

0

2000

4000

6000

8000

10000

12000

14000

16000

2007 2010 2015F0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Incremental storage vol. (private) Penetration rate (private)

Hong Kong

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2007 2010 2015F0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Incremental storage vol. (private) Penetration rate (private)

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In Hong Kong, the top three players (Cordlife, Cryolife and Healthbaby) accounted

for more than 90% in terms of incremental and cumulative storage volume in the

private sector. Cyrolife had the most cumulative storage units, but less

incremental storage units than Healthbaby and Cordlife in 2010. Healthbaby had

the highest annual incremental storage units, followed by Cordlife. Healthybaby,

Cordlife and Cyrolife are estimated to have 45%, 28% and 23% of market share (in

terms of incremental storage), respectively in 2010.

Pricing structure

The following two tables highlight the pricing structure of key private cord blood

banks in Singapore and Hong Kong.

Pricing structure of key private cord blood banks in Singapore and Hong Kong

Private cord blood banks - Singapore Private cord blood banks - Hong Kong

Collection fee or

one-time fee Annual storage fee Storage period

Collection fee or

one-time fee Annual storage fee Storage period

Cordlife Option (i) SGD1,950 SGD250 21 years Cordlife Option (i) HKD19,000 HKD1,500 18 years

Option (ii) SGD4,200 SGD250 (from year 11 ) 21 years Option (ii) HKD23,500 HKD1,500 (from year 5 ) 18 years

Option (iii) SGD6,200 No annual fees 21 years Option (iii) HKD29,500 HKD1,500 (from year 10 ) 18 years

Option (iv) HKD36,000 No annual fees 18 years

Stemcord SGD1,580 SGD275 5 years or more

Usually 21 years Cyrolife Option (i) HKD37,400 No annual fees 18 years

Option (ii) HKD41,500 No annual fees 23 years

Option (iii) HKD45,380 No annual fees 28 years

Healthbaby HKD38,000 No annual fees 18 years

Source: DTFAS Market Research, Company website

Key Operating Costs

Cordlife’s key operating costs are: (i) cost of sales, (ii) selling & marketing

expenses and (iii) administrative expenses. The cost of sales relates to expenses

incurred in processing and storage of cord blood and includes costs of various

tests carried out, direct labour & material costs and overheads such as laboratory

and storage rental expenses. Cost of sales accounted for 27.2%, 28.9% and 31.2%

of revenue for FY10, FY11 and 9MFY12, respectively. The increase in cost of sales

in 9MFY12 was partly due to higher cost of additional blood testing required to

meet a change in AABB standards.

Selling & marketing expenses include advertising and promotion expenses,

marketing staff salaries and commission expenses. It accounted for 20.1%, 22.9%

and 23.1% of revenue for FY10, FY11 and 9MFY12, respectively. Administrative

expenses include salaries of administrative and finance staff, rental expenses,

consultancy expenses and depreciation of office equipment. It accounted for

23.3%, 21.6% and 32.3% of revenue for FY10, FY11 and 9MFY12, respectively. The

higher administrative expenses in 9MFY12 were mainly due to the one-off IPO

expenses of SGD1.3 mln incurred in 3QFY12.

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Breakdown of key operating costs and margin for FY10, FY11 and 9MFY12

FY10

27.20%

20.10%

23.30%

29.40%

FY11

28.90%

22.90%21.60%

26.60%

Cost of sales Selling & marketing expenses Administrative expenses Operating margin

9MFY12

31.20%

23.10%

13.40%

32.30%

Source: Company data

Key Risks

Regulatory risks: Cord blood banking industry is regulated by the respective

countries’ health authorities and global accreditation bodies. Any adverse

changes in regulatory policies, guidelines or requirements may impact the

industry. For example, a change in blood testing requirements by AABB resulted

in a cost increase of SGD120 per cord blood unit. In addition, a ban or significant

reduction in quota for mainland PRC mothers giving birth in Hong Kong will

reduce its potential market in Hong Kong.

Technology and alternative medical treatment risks: Future medical or

technological advances may render cord blood banking irrelevant. Although it is

currently possible to collect stem cells from other bodily sources such as bone

marrow, it involves surgical procedures and may potentially cause side effects. 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 inadequacies or problems with Cordlife’s cord blood

banking services or the cord blood banking industry in general resulting in bad

publicity or tarnishing of reputation will decrease the demand for its cord blood

banking services.

Credit risks associated with instalment customers: Cordlife is exposed to delay

or default on payments by its customers who are on annual payment options. Its

annual payment customers accounted for 40.3% and 39.2% of its total customers

in FY10 and FY11, respectively. Nevertheless, the default rates had been low at

0.1% and 0.2% of its total customers in FY10 and FY11, respectively.

Foreign exchange risks: As Cordlife has significant operations in Hong Kong, it

is exposed to foreign exchange translation risk as its reporting currency is in

SGD. 28.0% and 25.2% of its total revenue in FY10 and FY11, respectively were

denominated in HKD.

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Cordlife’s Growth Strategy

Cordlife will continue to leverage on its established brand, expertise and market

leadership to grow its core business in Singapore and Hong Kong. To this end, it

intends to intensify certain marketing activities which are aimed at promoting

awareness towards the benefits of cord blood banking in these markets. It will

also be increasing its current capacity and the recently acquired 22,000 sq.ft.

space in A’Posh Bizhub in Yishun will enable storage of up to about 650,000 cord

blood units when completed by year-end. Cordlife’s key growth plans include the

following:

Capitalise on strategic investment in the PRC for growth in Hong Kong

For growth in Hong Kong, Cordlife will continue to capitalise on its co-marketing

arrangement with China Cord Blood which gives it access to PRC expectant

mothers in Beijing, Guangdong and Zhejiang provinces who intend to deliver in

Hong Kong. For 2012, the Hong Kong government has set a quota of 31,000

places in maternity wards for mainland women in private hospitals and 3,400 in

public hospitals in response to public pressure. The management believes that in

the event if the government bars mainland Chinese women from giving birth in

Hong Kong, the company’s strong brand, track record and rising public

awareness of cord blood banking should help weather this potential change in

government regulations. In addition, the ban - if imposed - will not apply to

mainland Chinese women married to Hong Kong residents.

Leverage on expanded clinical use

As medical development expands the therapeutic utility of cord blood banking,

the perceived value of cord blood banking will be enhanced. The company

actively keeps abreast of research in the area of clinical utility of cord blood and

seeks to update it customers on these developments on a periodic basis.

Diversify into secondary and complementary services

The company was the first to introduce the automated processing system in

Singapore and Hong Kong. It is currently exploring the possibility of offering

umbilical cord tissue banking services in Singapore and has begun discussions

with MOH in relation to the licensing requirements for the provision of such a

service. The company also intends to grow its services through collaborations, in-

licensing and strategic alliances as opposed to in-house research and

development programme, and considers Singapore an ideal place for such

activities, given the depth of public biomedical research and pro-collaboration

attitudes of research institutions.

Growth through accretive acquisitions in selected markets

Cordlife is actively seeking opportunities to broaden its service offering and

expand its geographical coverage in Asia through accretive acquisitions in

selected markets around the region. In connection with its demerger from CBB

(listed on the Australian Stock Exchange and previously known as Cygenics

Limited), the company has entered into the ROFR agreement in which it was

granted right of first refusal (“ROFR”) to acquire CBB’s business in Indonesia,

India and Philippines.

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Strengths

Market Leadership. According to the Market Research Report conducted by

DTFAS, the market share held by Cordlife in Singapore and Hong Kong in

2010 is approximately 62% and 28%, respectively.

Clinical Leadership. It is believed that Cordlife is one of the first private cord

blood banks in Singapore and amongst the first in Hong Kong to have issued

cord blood units stored with the company for transplants and other

therapeutic use.

Quality Leadership. Cordlife was one of the first in Singapore and amongst

the first in Asia to be accredited by AABB and have remained accredited

since 2005. Its Hong Kong facility has been certified ISO:9001 since August

2007 and was accredited by AABB in October 2011.

Technology Leadership. Cordlife was one of the first to adopt the automated

processing system in Singapore and Hong Kong and is constantly seeking to

improve services through the use of technology which will improve the utility

of the cord blood units.

Experienced Management Team. The management, led by its Executive

Director and CEO, Mr Yee Pinh Jeremy, is supported by a team of key

executives who are experienced and competent in their respective functions.

Established brand and distribution networks. Cordlife maintains

collaborative relationships or arrangements with major private hospitals and

several clinics in Singapore and Hong Kong. It also has a collaborative

agreement with China Cord Blood Corporation to market Cordlife Hong

Kong’s cord blood banking services to Chinese expectant mothers planning

to deliver their babies in Hong Kong.

Weaknesses

Dependence on the two key markets, Singapore and Hong Kong exposes

Cordlife to concentrated geographical risks markets such as adverse

economic conditions, weaker consumer confidence/spending and

unfavorable regulatory changes.

Growth of the business is dependent on the fertility level as well as

population base in its key markets, Singapore and Hong Kong. Whilst

Singapore is facing stagnating and low birth rates, Hong Kong’s birth rates

have been supported by an influx of mainland mothers. In 2011, nearly 47%

of over 95,000 newborns in Hong Kong, or about 44,000 were born to

mainland women. Of the estimated 44,000 mainland women who gave birth

in Hong Kong, 33,000 went to private hospitals. The possible ban by the Hong

Kong authorities to prevent mainland Chinese women from giving birth in

Hong Kong may affect the potential market for cord blood banking in the

country.

Industry is competitive with a few established cord blood banking service

providers already operating in the same region and there is potential influx

of new entrants. In addition, there is the choice of selecting public cord blood

banking. This leaves limited flexibility in enhancing profit margins and

passing through rising costs.

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Significant capital investment to keep pace with technological advances.

The evolving cord blood banking industry coupled with increasing

competition requires key capital investment to continuously enhance existing

infrastructure and keep pace with technological developments.

Management Guidance

Management remains cautiously optimistic on the forward demand for its cord

blood banking services. Despite worries on the debt crisis in Europe and

uncertainties in the economic environment, Cordlife’s management is confident

of sustaining its profitability with its strong market position and brand equity

coupled with favourable industry factors. The positive industry factors include the

following:

Singapore’s private cord blood banking is expected to keep growing. As the

larger of only two private cord blood banking service providers in Singapore,

it is in a good position to benefit from deepening penetration rates of cord

blood banking in the country. As provided in the industry section earlier, the

penetration level of private cord blood banking is expected to rise 38% by

2015 from 24% in 2010 (Source: DTFAS). With Cordlife’s larger space at its

new headquarters and facility at Yishun, A’ Posh Bizhub, this should further

entrench its leadership position in Singapore.

Similarly, Cordlife is expected to benefit from deepening penetration rates in

Hong Kong, which are expected to rise from 11.5% in 2010 to 20.6% in 2015

(Source: DTFAS). Leading players, of which Cordlife is one of the top three in

terms of market share, are driving this growth by raising the visibility of cord

blood banking. Cordlife launch of the umbilical cord tissue banking in March

2011 offers an additional service to potential customers.

The group has also benefited from its indirect 10% shareholding in

Guangzhou Tianhe Nuoya. The nationwide penetration rate for private cord

blood banks in China is expected to increase from 0.5% in 2010 to 1.4% in

2015 (Source: DTFAS).

As for the possible ban by authorities to prevent pregnant women from mainland

China from giving birth in Hong Kong, management believes that its strong

brand, solid track record and leadership position should provide it with a firm

footing to weather this potential regulatory change. Furthermore, the ban, if

imposed, will not apply to mainland Chinese women married to Hong Kong

residents. With the relatively stable annual birth numbers among Hong Kong

residents ranging from 43,000 to 49,000, this should provide a substantial pool of

potential customers.

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Peer Comparison

The following charts show Cordlife’s fundamental performance and valuation

ratios relative to its listed peers with similar business activities in the region.

China Cord Blood Corp is a NYSE-listed company that owns stakes in cord blood

banks in Beijing, Guangdong, Zhejiang and Shandong. Bionet Corp, a Taiwan-

listed company is engaged in cell tissue banking and cell therapy which operates

primarily in Taiwan. Stemlife, listed in Bursa Malaysia is involved in stem cell

banking and therapeutics. Cryo-Save Group listed on the NYSE Euronext

Amsterdam operates as a family stem cell bank in Europe, Asia and Africa. While

Cordlife’s listing history is short, its profitability and capital efficiency ratios

compare favourably with its peers.

Cordlife’s annual sales growth declined in FY11 due to decrease in client

deliveries caused by the leading-on effects arising from the deteriorating global

economic condition. In spite of lower revenues, Cordlife managed to register a

small growth in its EPS due to efficient cost management and higher contribution

from associate’s income. The EPS growth rates for Bionet and Stemlife were not

meaningful as the two companies swung between profits and losses in the past

few years. Cordlife has managed its costs relatively well over the past years

showing healthy profit margins compared to its listed peers. Cordlife’s balance

sheet also appears healthy with a minimal debt/equity ratio of 2.1% in FY11.

Annual Sales Growth (%) Annual EPS Growth (%)

(50)

(30)

(10)

10

30

50

2009 2010 2011

(120)

(80)

(40)

-

40

80

120

160

200

2009 2010 2011


PER (X) Gearing (%)

On the PER valuation parameter, Cordlife has relatively short history as it was listed only in March 2012. Meanwhile, the company has a healthy balance sheet with minimal debt/equity ratio.

-

5

10

15

20

25

30

35

40

45

2009 2010 2011

Debt/Equity

-

2

4

6

8

10

2009 2010 2011


Cordlife Group Limited(SGX:P8A)

China Cord BloodCorporation (NYSE:CO)

Bionet Corp (GTSM:1784)

Stemlife Berhad(KLSE:STEMLFE)

Cryo-Save Group N.V.(ENXTAM:CRYO)

13

Standard & Poor’s


EBITDA Margin (%) Net Profit Margin (%)

Cordlife has managed its cost relatively well, showing healthy EBITDA and net profit margins as compared to its listed peers.

(30)

(20)

(10)

-

10

20

30

40

50

2009 2010 2011

(25)

(10)

5

20

35

2009 2010 2011


Note: For the charts above, all the companies are based on their latest FY11 results except China Cord Blood Corporation which is based on the recently released FY12 results (year-end March).

P/B vs. ROE comparisons shows that Cordlife is priced relatively attractively based on its 9MFY12 annualised results. It is trading at a reasonable P/B of 1.6x supported by an above average ROE.

P/B (x) vs. ROE (%)

2.4x, 10.1Stemlife

2.1x, 2.0Bionet

1.6x, 10.6Cordlife

1.0x, 12.2China Cord

Blood

0.7x, 4.9Cryo-Save

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0.0x 0.5x 1.0x 1.5x 2.0x 2.5x

P/B

ROE


Note: Given that Cordlife’s share base has increased following its recent listing, for peer comparison, we have used Cordlife’s annualised 9MFY12 results to compute P/B and ROE ratios based on the post-listing share capital and shareholders’ equity.

14

Standard & Poor’s


Company Background

Cordlife is primarily involved in cord blood banking which comprises collection at

birth, processing, testing, cryopreservation and storage of umbilical cord blood

units. It also provides umbilical cord tissue banking (currently only in Hong

Kong). The group is one of the first private cord blood banks in Asia. Currently,

the group provides cord blood banking services in Singapore and Hong Kong but

has also catered to clients from Indonesia, Macau and Philippines via cooperation

agreements. In addition it has a marketing collaboration agreement with China

Cord Blood to gain access to mainland PRC expectant mothers planning to deliver

in Hong Kong. It also owns an indirect 10% stake in Guangzhou Tianhe Nuoya

which has the sole license to operate cord blood banking in Guangdong, PRC.

Cordlife was incorporated in Singapore on May 2, 2001 and received license from

Ministry of Health to operate in June 2002. The group entered Hong Kong and the

PRC markets through Cordlife Hong Kong in March 2005. Cordlife was demerged

from its holding company, CBB on Jun. 30, 2011. Subsequently it listed on the

Singapore Exchange on Mar. 29, 2012.

Currently, Cordlife has stored in excess of 35,000 cord blood units in its

processing facilities located in Singapore and Hong Kong. The group is the larger

of only two private cord blood banks in Singapore and is amongst the three

market leaders for private cord banks in Hong Kong. It is estimated to have a 62%

and 28% market share in private cord blood banking market in 2010 in Singapore

and Hong Kong respectively.

Over the years, Cordlife has received a number of awards and accreditations such

as: (i) American Association of Blood Banks (AABB) accreditation for its

Singapore and Hong Kong facilities since September 2005 and October 2011

respectively; (ii) ISO9001 certification for its Hong Kong facility since August

2007; and (iii) Top Pregnant/Baby Products Award 2011 by Pregnancy Magazine.

Cordlife’s management is led by its chief executive officer & executive director,

Mr Yee Pinh Jeremy, who has been instrumental in the development and

management of the group over the past ten years. The other executive officers in

the group are Ms Gwendolene Yeo (general manager of Singapore operations),

Ms Emily Cheung (general manager of Cordlife Hong Kong) and Ms Thet Hnin Yi

(financial controller). Ms Yeo and Ms Cheung have been with the group for more

than seven years.

15

Standard & Poor’s


Shareholding Structure

Public

62%

Substantial

Shareholders

38%


Significant Shareholders

Common Shares

Equivalent Held

% of Common Shares

Outstanding

Market Value (SGD mln)

China Stem Cells (East) Company Limited 24,366,666 10.47 12.55 City Challenge Global Limited 21,800,000 9.37 11.23 Coop International Pte. Ltd. 20,450,000 8.79 10.53


Corporate Governance and Board of Directors

The board comprises six members, of which three are independent directors.

There is a separation of the non-executive chairman and CEO roles. Independent

directors chair key committees: audit, nominating and remuneration, and form a

majority in the audit committee (three out of three), nominating committee (two

out of three) and remuneration committee (two out of three).

Board of Directors

Name Title Date Joined

Dr Ho Choon Hou Chairman and non-executive director June 2011 Mr Yee Pinh Jeremy Executive director and chief executive officer June 2011 Ms Jin Lu Non-executive director July 2011 Mr Ho Sheng Lead independent director July 2011 Dr Goh Jin Hian Independent director July 2011 Mr Ng Tiak Soon Independent director November 2011


16

Standard & Poor’s


Group Structure

Source: Company data

Subsidiaries and associates

Cordlife (Hong Kong) Ltd. (100% owned) carries out cord blood banking and

umbilical cord tissue banking in Hong Kong. It owns a 10% stake in China

Stem Cells (South) Co. Ltd, an investment holding company which owns

100% of Guangzhou Tianhe Nouya Biology Engineering Co. Ltd. which

provides cord blood banking in Guangdong province, PRC.

Shanghai Cordlife Biomedical Research Co. Ltd. (100% owned) undertakes

marketing services in the PRC, in particular Guangdong province, to promote

the group’s cord blood banking services offered in Hong Kong.

CLS Services Pte. Ltd. (100%-owned, incorporated in Singapore) is a dormant

company.

Dividend Policy

While Cordlife does not have a formal dividend policy, it intends to recommend

and distribute dividends of at least 25% of its FY11 and FY12 net profits for FY12

and FY13, respectively.

Recent News and Developments

Cordlife announced unaudited earnings results for 3QFY12 ended Mar. 31,

2012, with revenue of SGD6.9 mln (+13.2% YoY), pre-tax profit of SGD1.1 mln

(-52.9% YoY) and net profit of SGD0.8 mln (+57.1% YoY). / SGX, May 14, 2012

Listed on the Main Board of Singapore Exchange: Cordlife’s common

shares were listed on the main board of the SGX-ST./ SGX, Mar. 29, 2012

Launched initial public offering (IPO): Cordlife launched its IPO of 60 mln

new shares at SGD0.495/share of which 2.0 mln shares are offered to the

public and the remaining shares sold by way of placement. The group is

expected to raise net proceeds for SGD26.3 mln of which SGD16.6 mln will

be used for business development and expansion in Singapore and overseas.

/ SGX, Mar. 21, 2012

Cordlife Group Limited

CLS Services Pte. Ltd. Cordlife (Hong Kong) Ltd. Shanghai CordlifeBiomedical Research

Co. Ltd.

China Stem Cells (South) Co. Ltd.

Guangzhou Tianhe NouyaBiology Engineering

Co. Ltd.

100% 100% 100%

100%

10%

Cordlife Group Limited

CLS Services Pte. Ltd. Cordlife (Hong Kong) Ltd. Shanghai CordlifeBiomedical Research

Co. Ltd.

China Stem Cells (South) Co. Ltd.

Guangzhou Tianhe NouyaBiology Engineering

Co. Ltd.

100% 100% 100%

100%

10%

17

Standard & Poor’s


Glossary

S&P STARS - Since January 1, 1987, S&P Capital IQ Equity Research has ranked a

universe of U.S. common stocks, ADRs (American Depositary Receipts), and ADSs

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Abbreviations Used in S&P Capital IQ Equity Research Reports

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S&P Global STARS Distribution In North America

As of March 31, 2012, research analysts at S&P Capital IQ Equity Research North

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hold recommendations and 7.6% with sell recommendations.

In Europe

As of March 31, 2012, research analysts at S&P Capital IQ Equity Research Europe

recommended 30.1% of issuers with buy recommendations, 49.4% with hold

recommendations and 20.5% with sell recommendations.

18

Standard & Poor’s


In Asia

As of March 31, 2012, research analysts at S&P Capital IQ Equity Research Asia



Globally

As of March 31, 2012, research analysts at S&P Capital IQ Equity Research globally



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19

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solicitation for the purchase or sale of any security or other financial instrument.

Securities, financial instruments or strategies mentioned herein may not be suitable

for all investors. Any opinions expressed herein are given in good faith, are subject

to change without notice, and are only current s of the stated date of their issue.

Prices, values, or income from any securities or investments mentioned in this report

may fall against the interests of the investor and the investor may get back less than

the amount invested. Where an investment is described as being likely to yield

income, please note that the amount of income that the investor will receive from

such an investment may fluctuate. Where an investment or security is denominated

in a different currency to the investor’s currency of reference, changes in rates of

exchange may have an adverse effect on the value, price or income of or from that

investment to the investor. The information contained in this report does not

constitute advice on tax consequences of making any particular investment decision.

This report (and the information and material herein) is not intended for any specific

investor and does not take into account your particular investment objectives,

financial situations or needs and is not intended as recommendation or particular

securities, financial instruments or strategies to you. Before acting on any

recommendation in this material, you should consider whether it is suitable for your

particular circumstances and, if necessary, seek professional advice.

This document does not constitute an offer of services in jurisdictions where PPCF or

its affiliates do not have the necessary licences.

For residents of Singapore- Anything herein that may be construed as a

recommendation is intended for general circulation and does not take into account

the specific investment objectives, financial situation or particular needs of particular

needs of any particular person. Advice should be sought from a financial adviser

regarding the suitability of an investment, taking into account the specific investment

objectives, financial situation or particular needs of any person in receipt of the

recommendation, before the person makes a commitment to purchase the

investment product.

2012-06-29 cord.si (s&p capital i) cordlife initiation

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