Soochow CSSD Capital Markets analyst Simeon Ang is maintaining his “buy” recommendation on Cordlife Group with an unchanged target price of 47 cents after the group’s FY2021 results surpassed Ang’s lowered expectations.
For the FY2021 ended December, the group’s revenue and NPAT stood at 103% and 132% of Ang’s trimmed expectations on the back of a h-o-h growth in its overall performance.
During the 2HFY2021, Cordlife’s revenue grew 3.3% y-o-y to $29.4 million as contributions from its banking and diagnostics segments increased.
“While we believe that FY2022 may continue to be a start-stop year for Cordlife, [its] FY2022 revenue [and] earnings per share (EPS) should continue its recovery with 15% [and] 1% growth [respectively],” writes Ang in his March 15 report.
In his report, Ang posits Cordlife as an interesting target to be privatised given the low net-investment outlay of less than $40 million, which includes a takeover premium of around 20% at its current prices.
“While management continues to explore strategic opportunities with other cord blood banks, we believe that mergers and acquisition (M&A) activities may focus on diagnostics, which would be in-line with management’s organic expansion plans,” writes Ang.
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He adds that it would make sense for the group to list in Hong Kong instead, following the inclusion of Yiu Ming Yiu, who took up a board seat in Cordlife after TransGlobal’s acquisition of 71.5 million shares at 52 cents apiece.
Yiu is the son of TransGlobal’s principals.
Ang’s current target price values the group at an undemanding FY2022 ex-cash P/E of 5.5x.
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“Our valuation takes into consideration the lifetime value of $118.15 per client, derived from implied average selling prices (ASPs) and expected acquisition costs/client,” he explains.
“Our FY2022 forecasted cash and near-cash assets amounts to $89.6 million or [around] 95% of [Cordlife’s] current market cap,” he adds.
Potential catalysts, according to Ang, include potential mergers and acquisitions (M&A) and, or the possibility of privatisation.
“A key risk to our forecasts would be further lockdowns across key markets, affecting both parents’ willingness to have babies and reducing marketing channels,” says Ang.
As at 12.10pm, shares in Cordlife are trading flat at 37 cents.
