Cordlife

Cordlife: In an interview with the Business Times, Cordlife's CEO, Jeremy Yee remains unfazed that its 10% owned China Cord Banking Corp (CCBC - listed on NYSE) is not paying dividend and instead chooses to use its cash hoard to expand its business.

To re-cap, Cordlife's share price has jumped ~13% in recent weeks, after activist and major shareholder Jayhawk Capital pushed for CCBC to pay US$125m in dividend, prompting market watchers to look for a re-rating in the group should such a scenario eventuates.

Yee however argues that if CCBC has reinvestment plans, it does not make sense to pay dividends, highlighting that CCBC is the first and largest player in China's cord blood industry, which is effectively a duopoly. Furthermore, penetration rate is very low at just 2%, suggesting strong growth potential ahead.

Cordlife holds US$44m worth of convertible bonds (7% coupon rate) in CCBC, and could raise its stake to almost 15% should it chose to convert its bonds in 2017.

Additionally, Cordlife has lent US$46.5m with a 7% interest rate to CCBC's chairman, Kam Yuen to pick up his share of the convertible notes. With Kam's first interest payment due next month, there are some concerns on his ability to pay up, although Cordlife remains confident that Kam will be able to fulfil his debt obligations without any problem, adding that the risk is also mitigated by Kam's convertible notes being pledged as collateral to Cordlife.

Apart from China, Cordlife also has big aspirations in India, where Yee cited that big volumes could compensate for lower margins. The group currently operates in seven markets in Asia, and guides that it will pause in terms of expansion into other counties, preferring to concentrate on its existing markets.

Cordlife currently trades at 26.8x forward P/E versus China Cord Banking Corp’s 23.7x. Overall, the street has 3 Buy ratings with a consensus TP of $1.29 on the counter.