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Cordlife Group: Between Healthcare And Insurance
“知己知彼，百战百胜”, is a quote adapted from chapter three of Sun Tzu’s art of war. Translated to English Language, this means that by knowing yourself and your enemy, one will remain undefeated in a hundred battles.
Don’t fret, we are not going to war.
This quote fits like a glove in the context of government spending. By studying the segregation of government spending, one can literally get ahead of the pack by narrowing down a sea of investment opportunities and focusing on areas which the government intends to direct growth.
Unveiled earlier this year in February, Singapore’s National Budget in 2014 has denoted increased government spending prominently in three areas, namely healthcare, defence and manpower.
The limelight is shone on healthcare expenditure as it registered a whopping 18.7 percent increase to $6 billion from $5.1 billion in 2013, which is by far one of the areas where government expenditure has been pushed up most.
Apart from gearing up for an ageing population, Singapore is also regarded as Asia’s leading medical hub. With that reason, it comes with no surprise that more investments into the country’s infrastructure are required to upkeep its title.
Smart money would inevitably flow into the healthcare industry. However, this does not mean that an investor should “show hand” and pour money into just any healthcare company he or she can find. Prudence needs to be exercised, ultimately this is an investment after all.
While navigating through healthcare companies through the stock screener, I have managed to land my dart on one which has garnered my interest.
Unlike traditional hospitals with a business model centred on treating patients, Cordlife Group has established a unique business in cord blood banking, in other words, storing a baby’s blood that remains in the umbilical cord.
The basis of storing cord blood lies in the presence of stem cells within the extracted cord blood. Possessing regenerative properties, these stem cells are proven to be extremely useful for doctors to treat patients suffering from a range of complicated diseases such as leukaemia, inherited diseases and even certain types of cancer.
Further, what stands out from the company’s business model is the high barriers of entry due to strict regulations imposed by regulators before a cord blood storage license can be issued. Coupled with a strong brand name in the field built upon a long standing track record and service offerings that are highly differentiated and certified with several stringent international accreditations, positive long-term performance can be expected from the company while moving forward.
Facility of Cordlife in Hong Kong
Investment Merits
Only has one other competitor in Singapore with Cordlife emerging as the stronger party. Second largest in Hong Kong as well as owning a 10 percent equity stake in the largest cord blood banking player in China.
Consistent revenue stream that is levied annually matched with a balance sheet that is as good as debt-free
Strong free cash flow position accompanied with a relatively low capital expenditure structure
Investment Risks
More awareness needs to be created for the public on cord blood banking and its benefits
Still requires more research effort for other illnesses to be treated
Future expansion into the more affluent Western countries can pose a challenge due to stiffer competitions.
SI Research Takeaway
Despite being young, cord blood banking has yielded numerous benefits to the healthcare industry, especially in treating diseases. Growth in this area is more likely to see higher growth as more people recognise its benefits.
Like what my financial adviser has told me before, “Just make sure you have a valid insurance policy to claim against in the event of a mishap.”
I would nod and say something similar to myself for cord blood banking, “Just make sure I have it stored somewhere securely should I ever need it.”
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