Soochow CSSD Capital Markets (SCCM) analyst Simeon Ang has maintained his “buy” call on Cordlife Group and raised his target price to 52 cents for the stock after its FY2020 results came in line with expectations. 

Ang noted that Cordlife’s FY2020 Profit After Tax and Minority Interests (PATMI) came in flat at $6.5million, 1.2% higher y-o-y. This is due to higher operating margins, rising 1.6% y-o-y to 13.8% and lower tax expenses of almost 40% y-o-y. 

However, revenue slid 17.8% y-o-y to $50.6 million on lower cord blood banking service demand in light of Covid-19, although diagnostics jumped 70% YoY. 

SEE:Cordlife on target to achieve full-year net profit in FY18

The higher operating margins were also “buttressed by $2 million in government grants, as well as lower tax expense due to over-provision of taxes in prior years.

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Ang also highlighted that Cordlife saw a significant 23.2% y-o-y decline in new samples stored and processed, although average selling prices (ASPs) did prove to be resilient, inching up 1.4% y-o-y. Nonetheless, cord blood banking revenue declined 20.1% y-o-y to $48 million. 

On the flipside, diagnostic services continued to grow at a “steady clip” of about 70% y-o-y, attributable to the increase in pre-natal testing services. 

Revenue mix for cord blood banking vs diagnostic has shifted to a ratio of about 95:5 , compared to the FY2019 ratio of about 98:2, resulting in a lower FY2020 Gross Profit Margin of 62.7%, down 1.8% y-o-y.

Ang expects stronger FY2021 earnings on the back of dual marketing channels as well as resilient ASPs. He said “Covid-19 has necessitated the Group’s push into digital marketing as well as online consultation methods. We are sanguine on the Group’s prospects in the coming year to harness both the offline and online marketing channels to increase enrolments.” 

He also expects new samples to grow 22.2% YoY this year, before tapering off at a compounded annual growth rate (CAGR) of 5.3% from FY2021 to FY2024 backed by stable ASPs.

Ang is optimistic on a turnaround in Cordlife’s FY21E prospects, with revenue and PATMI expected to grow 13.3% and 13.5% YoY. respectively.

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Furthermore, given the region’s slowing birth rate, he “pencilled in a 5-year revenue and PATMI CAGR of 9% and 6% due to a shift in revenue mix towards Diagnostics”. Ang added by FY2024, he expects diagnostics to form about 9% of the company’s topline. 

As at 3.12pm, shares of Cordlife were trading at 38 cents, with a profit to earnings ratio of 13.2 for FY2021.