Cordlife

Cordlife: Swung into a 1QFY15 net loss of $3.5m, from a net profit of $8.7m a year ago. Adjusting for the group’s fair value changes on its investment in China Cord Blood Corp (1QFY15: -$4.9m, 1QFY14: $3.1m) and share of loss in associate (1QFY15: nil, 1QFY14: $2.1m), core net profit fell 9% y/y to $1.4m, and made up only 11% of full year forecast. Although revenue grew 17% to $13.3m, selling and marketing expenses expanded at a faster 36% clip to $4.4m. Two income streams will only come through in future quarters, such as 1) royalty income from cord tissue services in China and Malaysia; and 2) net interest income from the CCBC bonds and Magnum Opus funding agreement. So far, Cordlife has only launched cord tissue storage services in Beijing and only in Sep. Therefore, royalty income was negligible in 1Q. However, Guangzhou and Zhejiang will be rolled out soon and these are much bigger potential markets. Royalty income, which Maybank-KE estimates could be as much as $2.2m pa, should be more substantial in the coming quarters. Maybank-KE maintains Buy with lowered Tp of $1.30 from $1.50 by adjusting FY15-17e forecasts by 19-25% for higher-than-expected costs of the $120m raised to fund the CCBC CBs.