MCI (P) 194/11/2012

Ref. No.: SG2013_0066 1 of 21

Cordlife Group Ltd
Strong FCF generation at a reasonable price
Bloomberg Reuters POEMS
CLGL SP CORD.SI CLGL.SG
Industry: Medical & Healthcare
Phillip Securities Research Pte Ltd

8 April 2013
Report type: Initiation

Raw Beta (Past 2yrs weekly data) n.a.
Market Cap. (USD mn / SGD mn) 121 / 150
Enterprise Value (USD mn / SGD mn) 115 / 143
3M Average Daily T/O (mn) 2.0
52 week range (SGD) 0.41 - 0.7
Closing Price in 52 week range
Major Shareholders (%)
10.5
9.4
3. Coop International Pte Ltd 8.8
2. Lau Wai Chi Stellan
1. China Stem Cells East Co Ltd
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Volume, mn CLGL SP EQUITY STI rebased
0% 50% 100%
Key Financial Summary
FYE 12/12 12/13F 12/14F 12/15F
Revenue (SGD mn) 28.8 33.8 36.8 41.2
Net Prof it, adj. (SGD mn) 8.8 9.4 10.0 11.3
EPS, adj. (SGD) 0.038 0.040 0.043 0.048
P/E (X),adj. 17.0 16.0 15.0 13.3
BVPS (SGD) 0.306 0.330 0.348 0.369
P/B (X) 2.1 2.0 1.9 1.7
DPS (SGD) 0.038 0.025 0.027 0.030
Div. Yield (%) 5.9% 3.9% 4.2% 4.7%
Source: Bloomberg, PSR est.
*All multiples & yields based on current market price
Valuation Method
SOTP
Analyst
Derrick Heng
derrickhengch@phillip.com.sg
+65 6531 1221
Cordlife Group Ltd
Rating 1 Buy
- Previous Rating n.a. Not Rated
Target Price (SGD) 0.84
- Previous Target Price (SGD) n.a.
Closing Price (SGD) 0.645
Expected Capital Gains (%) 30.2%
Expected Dividend Yield (%) 3.9%
Expected Total Return (%) 34.1%



Company Overview
Cordlife Group (Cordlife) is a provider of cord blood and
tissue banking services. Cordlife operates primarily in
Singapore and Hong Kong, but offers indirect exposure to
China with a 10% stake in China Cord Blood Corporation.
Core earnings to increase at CAGR of 8.5%.
Strong FCF generation to sustain high dividend payout
to shareholders.
Potential venture into complementary products.
Acquisition of assets from CBB would drive
geographical diversification into emerging markets.
Undemanding valuations for a defensive stock.
Initiate with Buy, TP of S$0.84.

We initiate coverage on Cordlife with a Buy
recommendation and TP of S$0.84. The key reasons for our
positive view are as follow:
#1: Expect core earnings to increase at CAGR of 8.5%
over the next 3yrs.
With increasing awareness of cord blood banking, we
expect market penetration of Singapore and Hong Kong to
improve materially over the next 3yrs. Cordlife is well
positioned to benefit from this positive trend as one of the
few private cord blood banking service providers in these
markets. Furthermore, we believe that the Singapore
government would keep policies accommodative to
stimulate the current low level of birth rates (TFR target: 1.4-
1.5 vs 2012E: 1.28-1.30) in the country. This is evident by a
recently announced S$2bn package to promote marriage
and parenthood.

Fig 1: Profit Trend (S$mn)
Source: PSR est.
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Net Income, adj.
CAGR 12-15E: 8.5%

#2: Strong FCF generation to sustain high dividend
payout to shareholders.
We expect Free Cashflow (FCF) to trend north from FY14E
onwards as maintenance CAPEX requirements are likely to
stay low. FCF generated by the company is highly visible
and is backed by annual cashflow streams of c.S$6.25mn
from the 25k existing customers on annual payment plans.
We expect the strong cash generated to sustain a payout
ratio of c.60% in the next 3yrs.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
2 of 21
Fig 2: Free Cashflow (S$mn)
Source: PSR est.
0
1
2
3
4
5
6
7
8
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Free Cashflow

#3: Potential venture into complementary products.
Cordlife announced a strategic alliance with Cordlabs Asia
to offer umbilical cord tissue banking services beyond its
current market in Hong Kong. The alliance would allow
Cordlife to provide the services in India, Indonesia, Malaysia,
Philippines, Singapore and Hong Kong on an exclusive
basis and in Thailand on a non-exclusive basis. We believe
that this alliance would leverage on the companys existing
network and open up new growth markets for the group.

#4: Acquisition of assets from CBB would drive
geographical diversification into emerging markets.
Cordlife has a Right of First Refusal (ROFR) for the
acquisition of various operating assets in Philippines,
Indonesia & India from Cordlife Ltd (CBB), the Australia
listed entity that owned Cordlife Group prior to its demerger
in June 2011, should the company decide to divest.
Acquisition of these entities would provide Cordlife with
geographical diversification into emerging markets that have
higher birth rates and lower market penetration. The recent
results of CBB suggest that its operations in the emerging
markets could start turning profitable soon. As long as they
do not overpay for these emerging assets, we view any
potential acquisition as a positive catalyst for the stock.

#5: Undemanding valuations for a defensive stock.
Lastly, we find the valuations for the stock of Cordlife as
undemanding on various matrices. Despite the defensive
nature of its business, the stock of Cordlife trades at a
forward P/E of only 15X. Adjusting for the cash, liquid
investments and market value of Cordlifes stake in China
Cord Blood Banking Corp, the core business of the company
would offer a market leading FCF yield of c.7% in FY14E
and beyond. With the stock trading at our bear case
valuation level, we see limited downside at this entry point.












Fig 3: Forward P/E of 15X
Source: Bloomberg, PSR
15.2
10
12
14
16
18
20
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Forward P/E (X)

Fig 4: High levels of FCF yield (%)
Source: PSR est.
3.5%
4.0%
7.0%
7.6%
0%
2%
4%
6%
8%
10%
FY12 FY13E FY14E FY15E
Adjusted FCF yield (%)






































Cordlife Group Ltd
Singapore Equities Research
8 April 2013
3 of 21
Financial Summary

Deeper market penetration in Singapore to drive
revenue growth
After building in increased client deliveries from deeper
market penetration in Singapore, we expect revenue to
increase by 13% p.a. till FY15E. Our revenue growth
forecasts are conservative and already lower than the 18%
y-y revenue growth in 1HFY13 that is driven by 550 more
deliveries.

Hong Kong market to contract, mitigated by price hikes
We expect Cordlifes business in Hong Kong to contract in
CY13 due to the negative impact of policy restrictions on
deliveries by mainland women in Hong Kong. While the
policy measures are negative for Cordlife, we opine that the
impact would be softened by a price hike of c.7-9% (PSR
est.) over the past yr. As its business in Singapore had been
the main earnings driver, we believe that the impact of a
contraction in the Hong Kong would not be material to the
group.

Fig 5: Forecasting CAGR growth of 13% to FY13E
Source: PSR est.
0
5
10
15
20
25
30
35
40
45
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Revenue
CAGR 12-15E: 13%

Cost components
We estimate that 35% of the companys cost structure is in
items that are variable in nature (mainly expenses
associated with the conduct of the procedure). As the
company had effectively locked in longer term overheads
after moving into the new facility in Yishun, we expect
administrative expenses to stabilize at S$8-10mn p.a. in the
next 3yrs. While marketing expenses could continue
trending higher, we believe that it should stabilize at c.23%
of sales.

Fig 6: Cost Structure
Source: PSR est.
Selling and
marketing
expenses
28%
Cost of Sales
35%
Administrative
expenses
37%




EBITDA margins to expand on better product mix and
economies of scale
EBITDA margins have contracted over the past 4 yrs as the
company stepped up its marketing efforts and incurred
higher variable costs to comply with a change in the AABB
(an association involved in the field of transfusion medicine
and cellular therapies, formerly known as American
Association of Blood Banks) standards. However, we expect
profitability to improve over the next 3yrs due to economies
of scale and bigger contributions from the higher margin
business in Singapore.

Fig 7: Margins should expand on economies of scale
Source: PSR est.
0
2
4
6
8
10
12
14
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
26%
28%
30%
32%
34%
36%
38% EBITDA
EBITDA margin (%)

Profit contribution by geography
After stripping out contributions from its mainland associates,
Cordlifes business in North Asia (mainly Hong Kong) had
not been a meaningful profit contributor. South Asia (mainly
from Singapore) remains a key profit driver with PBT
contributions of c.S$7-9mn a year. With positive underlying
business trends, we believe that its operations in South Asia
will continue to be a driver of profits for the group.

Fig 8: Revenue by geography (S$mn)
Source: Cordlife
5.7
7.9
6.5
7.1
16.9
20.3
19.2
21.7
0
5
10
15
20
25
30
FY09 FY10 FY11 FY12
South Asia
North Asia

Fig 9: Profit by geography (S$mn)
Source: Cordlife, PSR est.
6.9
9.0
8.3
7.5
(0.0) (0.1) 0.8 0.2
(2)
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12
South Asia
North Asia

*Profit contributions adjusted to remove contributions from
associates and added IPO expenses to South Asia for FY12.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
4 of 21
Stable FCF to sustain dividend payout to shareholders
We expect CAPEX to decline significantly in FY14E onwards
as we estimate that its existing facilities in Singapore &
Hong Kong would only have a blended utilization of 10% by
the end of FY15E (based on facility space). Consequently,
we have forecasted increasing Free Cashflows (FCF) of
more than S$7mn/yr from FY14E onwards. FCF generated
by the company is highly visible and is backed by annual
cashflow streams of c.S$6.25mn from the 25k existing
customers on annual payment plans. Furthermore, we
expect recurring income stream to grow over time as the
number of units stored at the company increases. Hence,
we explicitly modeled in payout ratios of c.60% till FY15E,
which would use up c.S$6mn/yr of cash inflow (c.80% of
FCF). Our payout ratio assumption of 60% is higher than
management guidance of at least 25% in its IPO prospectus
as we believe that the strong cash generation and low
gearing of its balance sheet should allow them to sustain a
higher level of payout to shareholders.

Fig 10: FCF to sustain at >S$8mn/yr after FY15E
Source: PSR est.
(6)
(4)
(2)
0
2
4
6
8
10
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
CFO CAPEX, net FCF

Fig 11: DPS (S$)
Source: PSR est.
0.038 0.025 0.027 0.030
62%
63%
62%
100%
0.000
0.010
0.020
0.030
0.040
0.050
FY12 FY13E FY14E FY15E
0%
20%
40%
60%
80%
100%
120% DPS Payout Ratio (%)






Cordlife Group Ltd
Singapore Equities Research
8 April 2013
5 of 21
Valuation
With strong cash generation from its matured business units,
we believe that it is most appropriate to value the core
business using a DCF approach. Cordlife also holds a
significant 10% stake in China Cord Blood Corp that forms
c.13% of our valuation of the stock. Due to its unique
business model, we opine that Cordlife is not comparable to
other healthcare stocks listed on the SGX on a relative
valuation basis. As the cord blood banking business is highly
dependent on local market conditions, we believe that
comparing companies that operate in different countries is
far from meaningful. There are no comparable global peers
that operate in similar geography to Cordlife.

Fig 12: 34% upside to our target price of S$0.84





















Undemanding at P/E of 15X
Given the defensive nature and positive growth outlook, we
believe that the current P/E multiple of 15X undervalues the
stock of Cordlife. Furthermore, the company has a very
visible stream of future cashflows from its long term
contracts with customers. At our target price of S$0.84, the
stock would trade at a FY14/15E P/E of 19.6/17.4X
respectively.

Fig 13: Forward P/E of 15X
Source: Bloomberg, PSR
15.2
10
12
14
16
18
20
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Forward P/E (X)

Sum of the parts Value Percent Per shr Remarks
(Base case valuation) S$'mn S$
Core Value of Company, DCF 145.3 74% 0.62 DCF (WACC: 9.0%, terminal g: 1%)
Stake in China Cord Blood Corp. 26.2 13% 0.11 Market Value (US$2.87/shr)
Enterprise Value 171.6 88% 0.74 Basis: FY14E
Add: Investments 19.9 10% 0.09
Add: Cash 10.1 5% 0.04
Less: Debt (5.5) -3% (0.02)
Equity Value 196.0 100% 0.84
Outstanding no. of shares ('mn) 232.7
Target Price (S$') 0.84
Current Market Price (S$) 0.645
F12M DPS (S$) 0.025
Price upside (%) 30.2%
Dividend yield (%) 3.9%
Total return (%) 34.1%
Source: PSR est.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
6 of 21
SWOT Analysis

Strength

Brand awareness and goodwill in matured market
With significant operating history in Singapore and Hong
Kong, we believe that Cordlife has a well established brand
name in these core markets. Marketing efforts over the
years have led to strong brand recognition and significant
amount of goodwill in the countries.

Strong cash generative business
After incurring significant CAPEX from moving into its new
facility in Yishun, we expect minimal CAPEX needs for its
business in Singapore over the next few years. Hence, we
expect high levels of free cashflows to be generated by its
business in Singapore, which should allow Cordlife to
provide a stable stream of dividends to shareholders and
supply the cash for investments into other areas of growth.



Opportunities

Leveraging on rich database of client information
With its existing pool of cord blood under storage, Cordlife
holds a rich database of client information. Hence, we
believe that the company would be able to engage them as
repeat customers for their subsequent babies or offer
complementary products to them in the future.

Expansion into emerging markets
If Cordlife successfully acquires the operating assets from
CBB, the company would be able to gain an exposure to the
fast growing emerging markets. These emerging markets
have lower levels of penetration and higher birth rates.

Umbilical cord tissue banking
Currently, Cordlife only offers umbilical cord tissue banking
services in Hong Kong. However, the company recently
announced a partnership with Cordlab Asia to offer umbilical
cord banking services in Singapore, Hong Kong, Malaysia,
Indonesia, Philippines and India on an exclusive basis and
in Thailand on a non-exclusive basis. If successfully
executed, this new business would open up a new source of
income for the group.

Revenue streams beyond existing contractual period
Existing contracts for cord blood banking are for 21yrs and
18yrs in Singapore and Hong Kong respectively. Hence, we
believe that upon contract expiry, there is the opportunity for
contract renewal with the children of its existing clients.









Weakness

Key markets have been experiencing low fertility rates
As discussed below, the core markets of Singapore and
Hong Kong had been experiencing fairly low fertility rates.
Hence, growth in market size would likely be limited if this
trend continues.


Dependent on discretionary spending
While there are merits associated with storing ones cord
blood, cord blood banking remains a discretionary form of
spending. Hence, we expect the market size to shrink in
times of weak economic conditions, when discretionary
spending is scaled back.





Threats

Threat of substitute from public cord blood banks
Cord blood units from public banks could be used for
treatment as well. We believe that a significant increase in
funding to administer public banks would increase the
availability of samples and reduce the need for private
storage of cord blood.

Obsolescence of cord blood as a source of stem cells
The cord blood banking business exists as cord blood is a
rich source of stem cells. However, if advances in medical
technology allow alternatives to develop, the business model
could be under threat.

Entrance of new players
There are currently very few players providing private cord
blood banking services in the countries that Cordlife
operates in. Hence, competition is less aggressive in the
oligopolistic market structure. Entrance of new players could
disrupt the competitive landscape.

















Cordlife Group Ltd
Singapore Equities Research
8 April 2013
7 of 21
Porters Five Forces
On the whole, we believe that Cordlife has a fairly strong
competitive business position. While supplier power is
generally strong as Cordlife is a price taker of fees charged
by hospitals and doctors, we believe that the company has
the ability to pass on any price hikes to its customers. Entry
barriers are fairly high as marketing efforts over the years
have built significant amount of goodwill and brand
recognition in the core markets. We believe that this makes
it prohibitively costly for new entrants to penetrate their
markets.






Cordlife Group Ltd
Singapore Equities Research
8 April 2013
8 of 21
Board of Directors and Senior Management






Name Position Remarks
Board of Directors
Dr. Ho Choon Hou Chairman, Non-Executive
Director
- Appointed in June 2011.
- Director at Southern Capital Group Ltd, Private Equity Firm.
- Bachelor of Medicine & Bachelor of Surgery (The University of
Shef f ield), Masters in Medicine (Surgery) (National University of
Singapore), MBA (Honours) (The University of Chicago)
Ms. Jin Lu Non-Executive Director - Appointed in July 2011.
- Executive Director of Golden Meditech Holdings (2000-2012)
- Bachelor in Foreign Language (Beijing International Studies University),
Executive MBA (Peking University).
Mr. Ho Sheng Lead Independent Director - Appointed in July 2011.
- Partner at Banamai Capital.
- Bachelor of Economics (University of Tasmania), Master of Applied
Finance (Macquarie University), an associate of the Institute of Chartered
Secretaries and Administrators (UK), senior associate of the Australian
Institute of Finance and Banking.
Dr. Goh Jin Hian Independent Director - Appointed in July 2011.
- Executive Consultant of ParkwayHealth, Singapore.
- Group Executive Director of IAG Heathsciences Pte Ltd.
- Bachelor of Medicine and Bachelor of Surgery (National University of
Singapore), MBA (University of Hull), The Wharton Advanced
Management Program.
Mr. Ng Tiak Soon Independent Director - Appointed in November 2011.
- Self employed consultant
- Non-practicing member of the Institute of Certif ied Public Accountants,
member of Association of Chartered Certif ied Accountants (UK), member
of the Singapore Institute of Directors.
Senior Management
Mr. Yee Pinh Jeremy CEO, Execuitive Director - Appointed CEO in June 2011, Executive Director since Jan 2004.
- CFO of CBB prior to demerger in June 2011.
- Bachelor of Arts in Economic and Social Studies (Victoria University of
Manchester), Bachelor of Commerce (Murdoch University), Master of
Commerce (University of Sydney), MBA (Nanyang Technological
University), MBA (University of Chicago Booth School of Business).
Ms. Gwendolene Yeo
Teck Geok
General Manager,
Singapore
- Joined the group in Dec 2002.
- Diploma in Mass Communication (Ngee Ann Polytechnic), Bachelor of
Arts (Royal Melbourne Institute of Technology).
Ms. Cheung Wai Yee,
Emily
General Manager, Hong
Kong
- Joined the group in 2005.
- Graduate Certif icate in Business Administration, MBA (University of
South Australia).
Ms. Thet Hnin Yi Financial Controller - Joined group in June 2011.
- Joined CBB as Senior Finance Manager in Dec 2007.
- Diploma in Accountancy (Ngee Ann Polytechnic), a f ellow of The
Association of Chartered Certif ied Accountants (UK), non-practising
member of the Institute of Certif ied Public Accountants of Singapore.
Source: Cordlif e

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
9 of 21
Company Overview
Cordlife Group (Cordlife) is a provider of cord blood and
tissue banking services. Cordlife operates primarily in
Singapore and Hong Kong, but offers indirect exposure to
China with a 10% stake in China Cord Blood Corporation.
The stock was listed on the mainboard of the Singapore
Exchange on 29
th
March 2012.

Business Segments
Cordlife generates approximately 75% and 25% of its group
revenue from businesses in South Asia (mainly Singapore)
and North Asia (mainly Hong Kong) respectively. South Asia
contributes almost all the profits for the group with its
business in North Asia only marginally profitable. Majority of
its existing revenue is attributable to the cord blood banking
services as the umbilical cord tissue banking services was
only started recently (launched in Hong Kong: Mar 2011).
This makes Cordlife a single product company that is highly
dependent on the cord blood banking industry.

Fig 14: Revenue by geography (S$mn)
Source: Cordlife
5.7
7.9
6.5
7.1
16.9
20.3
19.2
21.7
0
5
10
15
20
25
30
FY09 FY10 FY11 FY12
South Asia
North Asia

Fig 15: Profit by geography (S$mn)
Source: Cordlife, PSR est.
6.9
9.0
8.3
7.5
(0.0) (0.1) 0.8 0.2
(2)
0
2
4
6
8
10
12
FY09 FY10 FY11 FY12
South Asia
North Asia

*Profit contributions adjusted to remove contributions from
associates and added IPO expenses to South Asia for FY12.

What is cord blood banking?
Cord blood is the blood that is removed from a babys
umbilical cord at birth and is a rich source of stem cells. This
provides an alternative to bone marrow as a source of stem
cells that can be used for the treatment of various diseases.
The risk free extraction is the main advantage of using cord
blood, as compared to using bone marrow that requires a
surgery. The process of collecting cord blood can be found
on the companys website: collection process.
Subsequently, the cord blood that is extracted would need to
be stored at very low temperatures for retrieval at a later
date.

The cord blood that is stored is a perfect match for the baby,
but it also has a high chance being compatible for the family
members. Conceptually, we see it as similar to purchasing
insurance for the baby and his/her family members.

Public vs private cord blood banks
Apart from private cord blood banking, such as services
provided by Cordlife, public cord blood banks are also a
source of cord blood. Cord blood samples that are stored at
public banks are usually donated and could be used to
support requirements from around the world. As such, unlike
storing the persons own cord blood at birth, a patient who
requires cord blood for treatment may not be able to find a
perfect match from public banks in the future.

Singapore
Singapore currently has 1 public and 2 private cord blood
banking service providers. Singapore Cord Blood Bank
(SCBB), the public cord blood bank in the country, holds
inventories of 8,943 samples with diversity similar to the
profile of Singapores ethnic groups. The samples held by
the public bank are approximately 0.23% of the resident
population (c.3.8mn) and 0.17% of the total population
(c.5.3mn) in Singapore. Cordlife is the only AABB accredited
private cord blood bank in Singapore.

Fig 16: SCBB Cord Blood Inventory, as of 30 Sep 2012
(k)
Source: SCBB, PSR est.
Chinese, 5.5 ,
62%
Others, 1.0 ,
11%
Indian, 0.7 ,
8%
Malay, 1.7 ,
19%


Fig 17: Singapore Resident Pop., as of 30 June 2012 (k)
Source: Singstat, PSR est.
Malay, 510 ,
13%
Indian, 351 ,
9%
Others, 126 ,
3%
Chinese,
2,832 , 75%









Cordlife Group Ltd
Singapore Equities Research
8 April 2013
10 of 21
Population trends
As with many developed nations, Singapore is currently
experiencing a low level of fertility rate. At 2012s Total
Fertility Rate (TFR) of 1.28-1.30, Singapore is significantly
below the replacement rate of 2.1. Consequently,
Singapores government recently set a target to move the
countrys TFR to 1.4-1.5 and had introduced an enhanced
S$2bn Marriage and Parenthood packages to support this
objective. Parents would receive a cash gift of S$6-8k for
their newborn (1
st
/2
nd
: S$6k; 3
rd
/4
th
: S$8k) from the
government and savings to a Child Development Account
(CDA) would be matched dollar-for-dollar by S$6-18k (1
st
/2
nd
:
S$6k; 3
rd
/4
th
: S$12k; >5
th
: S$18k). This significantly
subsidizes the cost of child rearing and benefits the private
cord blood banking industry by supplementing the cost of
using their services.

Fig 18: Birth rates in Singapore
Source: SingStat
42.6
35
40
45
50
55
C
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0
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1
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1.7
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1.9
2.0
Live birth in Singapore ('k), LHS
TFR, RHS

Market share
There is currently 2 private cord blood banking service
providers in Singapore. While both Cordlife & StemCord do
not breakdown the exact number of samples held in the
country, Cordlife was estimated to have a market share of
62% by deliveries in 2010. According to the companys
website StemCord stored more than 30k samples since
2002, which is marginally lower than the > 40k samples held
between Singapore and Hong Kong for Cordlife.

Fig 19: Market share of private cord blood banks by
deliveries in 2010 (k)
Source: Cordlife, PSR (for CY2010)
Stemcord, 3.5
, 38%
Cordlife, 5.8 ,
62%









Hong Kong
Hong Kong has 1 public and 5 private cord blood banking
service providers. There is very limited information on Hong
Kong Red Cross, the only public cord blood bank in the
country. However, according to a news article on the South
China Morning Post, dated 18
th
Sep 2012, the bank stored
about 3,600 samples and had been in operation since 1998.
The number of samples held by the public bank is
approximately 0.05% of the total population of Hong Kong
(c.7.2mn).

Population trends
Similar to Singapores population trend, TFR in Hong Kong
remained below replacement levels at 1.25 in 2012. The
birth rates in Hong Kong have improved significantly due to
the influx of mainland women giving birth in Hong Kong.
Within this group, babies born in Hong Kong, due to
mainland women whose spouses are not Hong Kongs
permanent residence, increased significantly over the years
(2011: 35.7k vs 2001: 0.6k). This was due to a court ruling in
2001 stating that babies born in Hong Kong to mainland
nationals have a right of abode in the country. However, this
trend of increasing birth rates in Hong Kong had put a
significant strain on the resources in the country.
Consequently, a policy to restrict mainland women from
giving birth in Hong Kong was imposed (2012 quota: private
hosp. - 31.0k; public hosp. - 3.4k). This restriction is
probably the reason for a decline in birth rates in 2012,
despite the seasonally stronger birth rates in the dragon
year. The Hong Kong government tightened this regulation
further in mid 2012 and imposed a zero delivery quota
policy for mainland women whose spouse are not Hong
Kong resident from 2013 onwards.

Fig 20: Birth rates in Hong Kong
Source: HK Census & Statistics Dept
91.3
40
50
60
70
80
90
100
110
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0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
Live birth in Hong Kong ('k), LHS
TFR, RHS

Fig 21: Composition of live birth in Hong Kong
Source: HK Census & Statistics Dept
0
10
20
30
40
50
60
70
80
90
100
110
C
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10%
20%
30%
40%
50%
60%
Live birth due to Mainland women ('k)
Live birth ex-Mainland woman ('k)
% Mainland women

*Detailed breakdown of composition is not available for CY12.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
11 of 21
Market share
There is currently 5 private cord blood banking service
providers in Hong Kong. Based on 2010 figures, Cordlife
has a market share of 28% by deliveries in the year. Among
these players, only the 3 largest players, Cryolife, Cordlife
and Healthbaby have attained AABB accreditation.

Fig 22: Market share of private cord blood banks by
deliveries in 2010 (k)
Source: Cordlife, PSR (for CY2010)
Smart Cells &
Asia Pacific
Stem Cells,
0.2 , 4%
Cryolife, 1.2 ,
23%
Cordlife, 1.5 ,
28%
Healthbaby,
2.3 , 45%


Low fertility rate in core markets
According to data from Central Intelligence Agency (CIA),
Hong Kong and Singapore have among the lowest fertility
rates in the world. However, these countries tend to have a
higher level of wealth and disposable income, which we
opine is a more important gauge of cord blood banking
adoption levels. According to data from World Bank,
Singapore has the highest level of healthcare expenditure
per capita in the markets relevant to Cordlife.

Fig 23: Fertility rate
Source: CIA
3.10
2.61 2.55
2.20
1.66
1.55
1.11
0.93
0.79
53 78 81 104 175 184 221 223 224
0.0
1.0
2.0
3.0
4.0
5.0
P
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a
p
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e
Children Born per Woman
Ranking

*CIAs measure of fertility rates could differ from national standards
as a result of factors including data availability, assessment, and
methods and protocols.














Fig 24: Healthcare exp. & GDP per capita, 2010 (US$)
Source: World Bank, PSR
77
368
54 77
179
221
1,563
1,733
0
500
1,000
1,500
2,000
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Healthcare exp. per capita (US$), LHS
GDP per capita (US$'k), RHS

^Healthcare expenditure data for Hong Kong estimated from HK
DOH & data for Macao not available.

Insurance penetration rate as a gauge
We believe that cord blood banking is conceptually similar to
life insurance policies. The insured pays a premium to
receive a payout when a situation arose. However, there
are two distinct differences. While insurance policies can be
bought at anytime in a persons life, the decision to adopt
cord blood banking can only be made once in a persons life
(i.e. at birth). Hence, the decision to bank ones cord blood is
highly time sensitive. The second difference is that while the
payout for insurance policies is money; the payout for
cord blood banking is the opportunity to utilize ones stem
cell to save his/her life. Due to the conceptual similarity, we
believe that one can use insurance penetration history as a
guide to the potential for cord blood banking. As compared
to a population of 5.3mn, 4.9mn lives were insured in
Singapore at the end of 2012. The no. of lives insured as a
proportion of population in Singapore trended higher over
the years at a rate of 3.2% p.a. from 25% in 1991 to 92% in
2012. Hence, if the adoption of private cord blood banking
takes a similar path as that of insurance penetration, there
would be significant upside to the 24% market penetration
rate for Singapore in 2010.

Fig 25: Lives Insured vs Population in Singapore
Source: CEIC, PSR
0
1,000
2,000
3,000
4,000
5,000
6,000
1
9
9
1
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1
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0
1
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0%
20%
40%
60%
80%
100% No. of Lives Insured ('k)
as % of Population












Cordlife Group Ltd
Singapore Equities Research
8 April 2013
12 of 21
We believe that our target price of S$0.84 is
conservative for the following reasons:

1) Market penetration assumed to stagnate from CY15E.
As shown in the discussion of our modeling assumptions,
we have conservatively assumed stagnant market
penetration after CY15E (Singapore: 38%; Hong Kong: 21%)
and prefer to leave further penetration beyond CY15E as an
upside risk to our valuation of the stock.

2) Potential introduction of Umbilical Cord Tissue
Banking in Singapore, yet to be built in. Currently,
Cordlife only offers umbilical cord tissue banking services in
Hong Kong. In Feb 2013, the company announced that it
has entered into a strategic alliance agreement with
CordLabs Asia to co-operate on providing similar services
across various countries. With management currently
exploring the possibility of introducing this service in
Singapore, we believe that this could open up an additional
revenue stream in the near future. However, until there is
greater clarity on adoption of this new product, we prefer to
leave this future revenue stream out of our model.

3) Conservative valuation of its stake in CCBC. We were
conservative in using the market price of CCBC as our
valuation inputs. Our valuation of Cordlife would have
increased by S$0.10 to S$0.94, if we had used consensus
target price of US$5.50 as our valuation input.

Fig 26: Market Price of CCBC
Source: Bloomberg
3.20
2.41
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
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Stock Price (US$)

4) Potential acquisition of fast growing emerging assets
from CBB not factored in. Cordlife has a Right of First
Refusal (ROFR) for the acquisition of various operating
assets in Philippines, Indonesia & India from CBB, should
the company decide to divest. Acquisition of these entities
would provide Cordlife with geographical diversification into
emerging markets that have higher birth rates and lower
market penetration. As observed from the recent results of
CBB, the Philippines portfolio had turned profitable with its
sales in 1HFY13 (A$1.3mn) almost matching that of FY12
(A$1.4mn). This implies that cash burn rate in the emerging
markets could slow as its units start to turn profitable. So,
what price to pay these assets? We believe that a reference
point for these assets would be CBBs market value of
c.S$11.6mn (A$8.6mn based on market price of A$0.050),
which could be fully funded with less than 2yrs of operating
cashflow.

Fig 27: Revenue of emerging market in CBB (A$mn)
Source: CBB
1.3
1.0 1.0
0.7
0.5
1.7
3.4
2.2
1.4
1.3
0.1
1.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
FY10 FY11 FY12 HY13
Philippines
India
Indonesia

Fig 28: Profits of emerging market in CBB (A$mn)
Source: CBB
(0.7)
(1.5)
(1.0)
(0.8)
(0.9)
(0.8)
(0.4)
(0.1)
(0.2)
0.3
(0.6)
(0.6)
(3.5)
(3.0)
(2.5)
(2.0)
(1.5)
(1.0)
(0.5)
0.0
0.5
FY10 FY11 FY12 HY13
Philippines
India
Indonesia

Fig 29: Market Price of CBB
Source: Bloomberg 0.080
0.030
0.00
0.02
0.04
0.06
0.08
0.10
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Cordlife Group Ltd
Singapore Equities Research
8 April 2013
13 of 21
Key Drivers:
We expect the number of live births in Singapore to
moderate in CY13E to 38.0k, as we build in moderation after
the seasonally stronger dragon year of 42.6k live births in
CY12. In line with the long term population growth of
Singapore, live births are assumed to increase at 1% a year.
We modeled higher penetration rates and a 62% market
share for Cordlife over the next few years and assumed that
penetration rate sustain at 38% in CY15E and beyond.

For the Hong Kong market, we expect live births at private
hospitals to decline to 20.0k in CY13E due to restrictions on
deliveries by mainland women as explained earlier. Similar
to Singapore, live births are assumed to increase at 1% a
year. We modeled a 28% market share and higher
penetration rates over the next few years to a sustained
level of 21% in CY15E and beyond.

Our assumptions on the market penetration in Singapore
and Hong Kong are in line with the market research report in
Cordlifes IPO prospectus by Deloitte & Touche Financial
Advisory Services Limited.

Fig 30: Key Model Assumptions



Key risks to our view:
Market Penetration - While market penetration is
expected to deepen for Cordlifes core markets of
Singapore and Hong Kong, actual increase in
penetration rate may slow or not take place.

Overpaying for emerging assets held by CBB - While
acquisition of emerging assets held by CBB could
provide growth beyond the matured markets, we believe
that there is a risk of overpaying for them as it depends
on the negotiation between the two parties.

Regulatory - We believe that a change in regulatory
regimes would have a significant impact on the business
of Cordlife. For example, recent measures by the Hong
Kong government to ban mainland women, who are not
spouses of Hong Kong residents, from delivering in the
country have effectively shrunk the number of live births
and market size for the cord blood banking players.






Model Build:
Key assumptions CY13E CY14E CY15E CY16E CY17E CY18E CY19E CY20E CY21E CY22E CY23E CY24E
Singapore
Live Birth ('k) 38.0 38.4 38.8 39.2 39.5 39.9 40.3 40.7 41.1 41.6 42.0 42.4
y-y (%) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Penetration (%) 32.0% 35.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%
Cordblood bank deliveries ('k) 12.2 13.4 14.7 14.9 15.0 15.2 15.3 15.5 15.6 15.8 16.0 16.1
Cordlif e Market share (%) 62% 62% 62% 62% 62% 62% 62% 62% 62% 62% 62% 62%
Hong Kong
Live Birth ('k) <Private hosp.> 20.0 20.2 20.4 20.6 20.8 21.0 21.2 21.4 21.7 21.9 22.1 22.3
y-y (%) 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Penetration (%) 16.9% 18.7% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%
Cordblood bank deliveries ('k) 3.4 3.8 4.3 4.3 4.4 4.4 4.5 4.5 4.5 4.6 4.6 4.7
Cordlif e Market share (%) 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28% 28%
Key model inputs FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E
Client delivery ('k) 8.4 8.9 9.9 10.4 10.5 10.6 10.7 10.8 10.9 11.0 11.1 11.2
Units stored ('k) 49.3 58.2 68.1 78.5 89.0 99.6 110.3 121.1 132.0 143.0 154.1 165.4
Utilisation (%) 6.9% 8.2% 9.6% 11.1% 12.5% 14.0% 15.5% 17.1% 18.6% 20.1% 21.7% 23.3%
Revenue (S$'mn) 33.8 36.8 41.2 44.4 46.2 48.1 50.0 51.9 53.8 55.8 57.7 59.7
y-y (%) 17.6% 8.9% 11.8% 7.7% 4.2% 4.0% 3.9% 3.8% 3.7% 3.6% 3.5% 3.4%
Gross Margin (%) 70.0% 70.5% 71.0% 71.0% 71.0% 71.0% 71.0% 71.0% 71.0% 71.0% 71.0% 71.0%
Gross Prof it (S$'mn) 23.7 26.0 29.3 31.5 32.8 34.1 35.5 36.8 38.2 39.6 41.0 42.4
FCF (S$'mn) 7.9 9.6 9.6 10.2 10.6 11.2 11.7 12.3 12.8 13.4 13.9
Terminal Value (S$'mn) 169.3
WACC (%) 9.0%
Terminal g (%) 1.0%
Discounted FCF (S$'mn) 7.5 8.4 7.7 7.5 7.2 7.0 6.7 6.4 6.2 80.6
Sum of Discounted FCF (S$'mn) 145.3
Source: PSR est.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
14 of 21
Scenarios
Bullish view - Dreaming of the upside What if cord
blood banking continues to gain popularity? As with every
trend, there are always tipping points that could result in
mass adoption. For example, during initial introduction of
mobile phones, not many would have imagined a market
penetration of >100% in Singapore. In crafting our bullish
view on the stock, we assumed that market penetration
would continue to deepen over the next decade and sustain
at 60% in Singapore and 40% in Hong Kong by 2022. We
also used consensus TP of US$5.50/shr to value Cordlifes
stake in China Cord Blood. This valuation method would
drive a target price of S$1.12.

Fig 31: Bullish Valuation presents significant upside





















Fig 32: Bearish Valuation close to current market price























Bearish view- What if the forecasted penetration did not
materialize? We should also exercise caution and think
about the downside. In this scenario, we assume that all the
bullish views about increasing market penetration did not
materialize and penetration levels stays at that of CY10
(Singapore: 24.0%; Hong Kong 11.5%). We have also used
the 1 year low of China Cord Blood of US$2.41/shr in this
valuation model. This would lead to a valuation that is close
to the current market price of S$0.64.

















































Sum of the parts Value Percent Per shr Remarks
(Bullish view) S$'mn S$
Core Value of Company, DCF 185.2 71% 0.80 DCF (WACC: 9.0%, terminal g: 1%)
Stake in China Cord Blood Corp. 50.3 19% 0.22 Consensus TP (US$5.50/shr)
Enterprise Value 235.5 91% 1.01 Basis: FY14E
Add: Investments 19.9 8% 0.09
Add: Cash 10.1 4% 0.04
Less: Debt (5.5) -2% (0.02)
Equity Value 260.0 100% 1.12
Outstanding no. of shares ('mn) 232.7
Target Price (S$') 1.12
Current Market Price (S$) 0.645
F12M DPS (S$) 0.025
Price upside (%) 73.6%
Dividend yield (%) 3.9%
Total return (%) 77.5%
Source: PSR est.
Sum of the parts Value Percent Per shr Remarks
(Bearish view) S$'mn S$
Core Value of Company, DCF 100.5 67% 0.43 DCF (WACC: 9.0%, terminal g: 1%)
Stake in China Cord Blood Corp. 22.0 15% 0.09 Lowest price in 1yr (US$2.41/shr)
Enterprise Value 122.6 82% 0.53 Basis: FY14E
Add: Investments 19.9 13% 0.09
Add: Cash 12.9 9% 0.06
Less: Debt (5.5) -4% (0.02)
Equity Value 149.9 100% 0.64
Outstanding no. of shares ('mn) 232.7
Target Price (S$') 0.64
Current Market Price (S$) 0.645
F12M DPS (S$) 0.025
Price upside (%) -0.8%
Dividend yield (%) 3.9%
Total return (%) 3.1%
Source: PSR est.

Cordlife Group Ltd
Singapore Equities Research
8 April 2013
15 of 21
FYE June FY11 FY12 FY13F FY14F FY15F
Valuation Ratios
P/E (X), adj. 17.7 17.0 16.0 15.0 13.3
P/B (X) n.m. 2.1 2.0 1.9 1.7
EV/EBITDA (X), adj. 16.2 17.6 15.0 13.4 11.5
Dividend Yield (%) n.m. 5.9% 3.9% 4.2% 4.7%
Per share data (SGD)
EPS, reported n.m. 0.030 0.052 0.043 0.048
EPS, adj. 0.036 0.038 0.040 0.043 0.048
DPS n.m. 0.038 0.025 0.027 0.030
BVPS n.m. 0.306 0.330 0.348 0.369
Growth & Margins (%)
Growth
Revenue -8.8% 12.1% 17.6% 8.9% 11.8%
EBITDA -9.5% -7.7% 17.0% 11.9% 16.9%
EBIT -11.5% -9.4% 15.1% 12.0% 19.3%
Net Income, adj. 2.5% 4.2% 6.5% 6.2% 13.0%
Margins
EBITDA margin 34.3% 28.2% 28.1% 28.8% 30.2%
EBIT margin 32.0% 25.8% 25.3% 26.0% 27.8%
Net Prof it Margin 33.0% 24.1% 35.7% 27.1% 27.4%
Key Ratios
ROE (%) 23.0% 12.4% 16.3% 12.7% 13.5%
ROA (%) 14.8% 9.5% 12.5% 9.4% 10.0%
Net Debt/(Cash) (3) (10) (3) (5) (8)
Net Gearing (X) Net Cash Net Cash Net Cash Net Cash Net Cash
Income Statement (SGD mn)
Revenue 25.7 28.8 33.8 36.8 41.2
EBITDA 8.8 8.1 9.5 10.6 12.4
Depreciation & Amortisation (0.6) (0.7) (0.9) (1.0) (1.0)
EBIT 8.2 7.4 8.6 9.6 11.4
Net Finance (Expense)/Income 0.0 0.2 0.5 0.4 0.1
Other items 0.0 (1.9) 2.7 0.0 0.0
Associates & JVs 1.7 2.1 2.0 2.0 2.1
Profit Before Tax 9.9 7.8 13.7 12.0 13.6
Taxation (1.5) (0.9) (1.6) (2.0) (2.3)
Profit After Tax 8.5 6.9 12.1 10.0 11.3
Non-controlling Interest 0.0 0.0 0.0 0.0 0.0
Net Income, reported 8.5 6.9 12.1 10.0 11.3
Net Income, adj. 8.5 8.8 9.4 10.0 11.3
Source: PSR


























































































Cordlife Group Ltd
Singapore Equities Research
8 April 2013
16 of 21
FYE June FY11 FY12 FY13F FY14F FY15F
Balance Sheet (SGD mn)
PPE 4.3 6.1 10.1 9.6 9.4
Intangibles 0.0 0.0 0.0 0.0 0.0
Associates & JVs 15.1 17.7 27.4 29.4 31.5
Investments 0.2 13.2 13.6 13.9 11.7
Others 22.9 24.3 26.0 28.3 31.6
Total non-current assets 42.5 61.2 77.1 81.3 84.2
Inventories 0.2 0.4 0.4 0.4 0.4
Accounts Receivables 7.1 9.2 10.0 10.9 12.2
Investments 1.3 6.0 6.0 6.0 6.0
Cash 4.0 12.9 8.5 10.1 14.0
Others 0.3 0.5 0.5 0.5 0.5
Total current assets 12.9 29.1 25.5 27.9 33.1
Total Assets 55.4 90.4 102.6 109.2 117.4
Short term loans 0.1 0.1 0.2 0.2 0.2
Accounts Payables 4.3 3.9 5.5 5.9 6.5
Others 3.7 4.3 4.3 4.3 4.3
Total current liabilities 8.0 8.3 9.9 10.4 10.9
Long term loans 0.8 2.5 5.3 5.3 5.3
Others 6.0 8.5 10.7 12.6 15.2
Total non-current liabilities 6.8 10.9 16.0 17.9 20.5
Non-controlling interest 0.0 0.0 0.0 0.0 0.0
Shareholder Equity 40.6 71.2 76.7 80.9 85.9
Cashflow Statements (SGD mn)
CFO
PBT 9.9 7.8 13.7 12.0 13.6
Adjustments (1.2) 0.5 (4.2) (1.4) (1.2)
Cash f rom ops bef ore WC changes 8.7 8.3 9.5 10.6 12.4
WC changes 0.6 (0.6) 1.3 (0.8) (1.4)
Cash generated f rom ops 9.4 7.7 10.8 9.8 11.0
Taxes paid, net (1.4) (1.7) (1.6) (2.0) (2.3)
Interest paid (0.0) (0.0) (0.1) (0.2) (0.2)
Cashflow from ops 7.9 6.0 9.0 7.6 8.5
CFI
CAPEX, net (3.1) (2.4) (5.0) (0.5) (0.8)
Dividends f rom associates & JVs 0.0 0.0 0.0 0.0 0.0
Dividends/Interest f rom Investments 0.1 0.1 0.3 0.3 0.3
Purchase/sale of investments (1.3) (17.7) (0.0) (0.0) 2.2
Investments in subs & associates 0.0 0.0 (5.1) 0.0 0.0
Others 0.0 0.0 0.0 0.0 0.0
Cashflow from investments (4.3) (20.0) (9.9) (0.3) 1.7
CFF
Share issuance 0.0 26.0 0.0 0.0 0.0
Purchase of treasury shares 0.0 0.0 0.0 0.0 0.0
Loans, net of repayments 0.8 1.7 2.9 0.0 0.0
Dividends to minority interests 0.0 0.0 0.0 0.0 0.0
Dividends to shareholders & capital reduction 0.0 (4.7) (6.5) (5.8) (6.3)
Others (8.1) 0.0 0.0 0.0 0.0
Cashflow from financing (7.3) 23.0 (3.6) (5.8) (6.3)
Net change in cash (3.6) 9.0 (4.4) 1.5 3.9
Ef f ects of exchange rates 0.3 (0.0) 0.0 0.0 0.0
CCE, end 4.0 12.9 8.5 10.1 14.0
Source: PSR




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Total Returns Recommendation Rating
> +20% Buy 1
+5% to +20% Accumulate 2
-5% to +5% Neutral 3
-5% to -20% Reduce 4
<-20% Sell 5
We do not base our recommendations entirely on the above quantitative return bands.
We consider qualitative f actors like (but not limited to) a stock's risk reward prof ile, market
sentiment, recent rate of share price appreciation, presence or absence of stock price
catalysts, and speculative undertones surrounding the stock, bef ore making our f inal
recommendation
Ratings History
PSR Rating System
Remarks
1
2
3
4
5
Source: Bloomberg, PSR
0.40
0.50
0.60
0.70
0.80
0.90
M
a
r
-
1
2
J
u
n
-
1
2
S
e
p
-
1
2
D
e
c
-
1
2
M
a
r
-
1
3
J
u
n
-
1
3
Market Price
Target Price







Cordlife Group Ltd
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Contact Information (Singapore Research Team)


Chan Wai Chee Joshua Tan Derrick Heng
CEO, Research Head of Research Deputy Head of Research
Special Opportunities Global Macro, Asset Strategy
SG Equity Strategist &
Transport
+65 6531 1231 +65 6531 1249 +65 6531 1221
yebo@phillip.com.sg joshuatan@phillip.com.sg derrickhengch@phillip.com.sg

Go Choon Koay, Bryan Ken Ang Ng Weiwen
Investment Analyst Investment Analyst Macro Analyst
Property Financials, Telecoms Global Macro, Asset Strategy
+65 6531 1792 +65 6531 1793 +65 6531 1735
gock@phillip.com.sg kenangwy@phillip.com.sg ngww@phillip.com.sg

Roy Chen Nicholas Ong Research Assistant
Macro Analyst Investment Analyst General Enquiries
Global Macro, Asset Strategy Commodities, Offshore & Marine +65 6531 1240 (Phone)
+65 6531 1535 +65 6531 5440 research@phillip.com.sg
roychencz@phillip.com.sg nicholasonghg@phillip.com.sg











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Contact Information (Regional Member Companies)


SINGAPORE
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MALAYSIA
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