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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Initiating Coverage 1 July 2013

Singapore

Co. Reg No: 198700034E MICA (P): 099/03/2012

Cordlife Group The Cords That Bind; Initiate at BUY

Initiate with BUY and Street-high TP of SGD1.29. We initiate coverage on cord blood bank Cordlife with a BUY rating and a Street-high TP of SGD1.29, which offers 47% upside. With a strong platform to expand its product range combined with dominant positions in Singapore, Philippines, Indonesia and a strong presence in Hong Kong, India and China, it is poised to transform into Asia’s infant and maternal healthcare products champion over the next two years, riding the sweet side of both developed and emerging markets.

Regional platform done! Now to widen product scope. With the completion of recent acquisitions of Philippines, Indonesia and India’s operation last week, Cordlife has built a far-reaching platform. Next, we expect it to launch a wider range of maternal and infant healthcare products to better utilise its regional platform, which will drive economies of scale, margins and both top and bottomline growth. Already, it has expanded from just cord blood to include umbilical cords. However, the sky’s the limit and there is great potential to add more products and services that could be immediately earnings accretive. Accommodative home market, high growth potential in overseas markets. Strong government indirect subsidies coupled with an impregnable competitive position at home put Cordlife in good stead to grow from strength to strength. Overseas, the completed acquisition of established operations in the Philippines, Indonesia and India, coupled with the high-growth potential of these emerging markets, should be earnings accretive immediately and become a key growth driver over the longer term.

Highly scalable as differentiated model is easily replicated across the region. Cordlife’s tried-and-tested business model, which is built on product differentiation via flexible installment plans, insurance-like protection and patented technologies, can be easily replicated across its overseas operations to improve penetration rate and gain greater market share.

Riding the boom in China. Cordlife’s ambition to increase exposure in China got off to a good start with the recent acquisition of a 10% stake in China Cord Blood Corp (CCBC), and the appointment of its CEO, Jeremy Yee, as an independent director on CCBC’s board. We believe Cordlife could continue to raise its stake in CCBC in the medium term, or even merge with CCBC, as part of its long-term plan.

Undervalued for the potential. At current prices, we believe the market has not fully priced in Cordlife’s favourable market position, strong regional presence, excellent product expansion opportunities, exceptional margins, high competitive advantages and sustainable earnings. As a result, its valuations are still deeply depressed. Our TP of SGD1.29 is pegged at 23x FY14F PER, which is in line with its global peers.

Cordlife – Summary Earnings Table Source: Maybank KE FY JUNE (SGD m) 2011 2012 2013F 2014F 2015F Revenue 25.7 28.8 30.9 49.4 65.8 Gross Profit 18.3 20.0 21.6 31.5 41.2 Recurring Net Profit* 8.5 8.8 9.9 13.0 16.1 Recurring EPS (SGD cts) 5.6 3.8 4.2 5.6 6.9 DPS (SGD cts) 0.0 3.8 2.0 2.2 2.4 PER (x) 24.2 23.2 20.7 15.7 12.8 EV/EBITDA (x) 11.5 11.6 10.3 7.0 5.7 Div Yield (%) 0.0 4.3 2.3 2.5 2.7 P/BV (x) 3.3 2.9 2.6 2.4 2.2 ROE (%) 20.9 9.7 15.9 15.6 17.0 ROA (%) 15.3 7.7 11.7 11.8 12.7 Consensus Net Profit na na 9.9 11.0 12.0 *Includes PII entities = Philippines, Indonesia, India

Buy (new) Share price: SGD0.88 Target price: SGD1.29 (new) John CHEONG [email protected] (65) 6432 1461 Stock Information Description: Cordlife Group owns and operates private cord blood banks in Asia. The company focuses on providing cord blood banking services, which include the collection, processing, testing, preservation and storage of umbilical cord blood at birth. Ticker: CLGL SP Shares Issued (m): 232.5 Market Cap (USD m): 161.8 3-mth Avg Daily Turnover (USD m): 5.0 ST Index: 3,150.4 Free float (%): 65.5 Major Shareholder: % Well Springs Ltd 10.84 Coop International Pte Ltd 10.52 Golden Meditech Holdings Ltd 10.48 Key Indicators ROE (%) 12.4 Net gearing (%): Net cash BVPS/shr (SGD): 2.9 Interest cover (x): 680.7

Historical Chart

Performance: 52-week High/Low SGD1.19/SGD0.431 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) -22.5 35.4 61.5 76.4 61.5 Relative (%) -16.2 42.2 63.6 59.4 62.3

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Cordlife Group | Initiating Coverage

Investment summary

First mover advantage, strong track record. Cordlife, renowned as one of the first private cord blood banks to be established in Asia, occupies an exclusive segment in the healthcare industry with its primary business of providing cord blood and cord tissue banking services. It listed on the SGX in March 2012, following a demerger from its Australian parent entity Cordlife Limited (CBB). Today, Cordlife is the market leader in Singapore, the Philippines and Indonesia, and has a strong presence in Hong Kong and India, as well as China via a 10% indirect stake in China’s largest cord blood bank provider, China Cord Blood Corp (CCBC). It has the best track record among all the cord blood banks in Singapore and HK, having successfully released nine blood units to its clients for treatment in these two countries.

Foothold in emerging markets with high growth. The recent acquisition of CBB’s operations in the Philippines, Indonesia and India (“PII entities”) has put Cordlife in a favourable position to ride the growth in these emerging markets. We expect the PII entities to be immediately earnings accretive in FY14 and will transform into a key growth driver over the long term.

Entrenched competitive position. Cordlife’s strong competitive position, combined with its established position in an attractive industry with high barriers to entry, low threat of substitutes and low bargaining power of customers, will enable it to deliver above-average performance in the medium and long term.

Abundant upside potential. The penetration rates in Singapore, Hong Kong and China are 19%, 19% and 2% respectively in 2011 but only 0.1% in India, Indonesia and Philippines. Deloitte & Touche Financial Advisory Services (DTFAS) estimates that penetration rates of Cordlife’s key markets will reach 26% in Singapore and HK, more than double to 5.2% in China, 0.2% in India and Indonesia, and grow 40% to 0.14% in Philippines.

Exploration of complementary products. As part of its long-term growth plan, Cordlife is exploring the possibility of launching several complementary products related to infant and pediatrician markets which will boost revenue with minimum additional costs. We view this favourably as Cordlife can efficiently utilise its established customer base, close connection with medical doctors in the hospitals it works with, and its experienced sales force.

Deep war chest to fund expansion. Cordlife’s strong net cash position of around SGD25m is a boon to its quest for expansion and will allow it to launch new products with ease. In our view, its operational cashflow alone will be more than enough to fuel the expansion of the PII entities.

Enhanced cash generation. Cordlife is in a high-margin, cash-generative business. We are also starting to see more positive working capital as the newly launched umbilical cord service does not offer any installment plans, unlike the cord blood service, and more customers in Hong Kong are electing to pay the fees in a lump sum.

Stable recurring cash flow. Another factor in Cordlife’s favour is stable recurring cash flow. The company currently has approximately 25,000 customers in Singapore and Hong Kong, which contribute SGD250 pa each under its annual and 10-year payment plans. As a result, we estimate that Cordlife will enjoy a base cash flow of at least SGD6.25m each year for the next 10 years. Furthermore, the volume of this base will increase proportionately with new contracts signed under its annual and 10-year payment plans.

An outperformer but deeply undervalued. Cordlife stands out from its global and local peers in terms of margins, but the stock appears deeply undervalued vis-à-vis its local “general healthcare” peers. We believe this is because the market has not fully appreciated the nature of its stable recurring earnings and its excellent growth prospects, which should warrant a valuation closer to its local peers.

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Transforming into Asia’s champion Established on sturdy ground. Incorporated in Singapore in May 2001, Cordlife is renowned as one of the first private cord blood banks to be established in Asia. It occupies an exclusive segment in the healthcare industry with its focus on providing cord blood and cord tissue banking services. The company listed on the SGX in March last year. Prior to listing, it demerged from its parent entity, Cordlife Limited (CBB), which is listed on the Australian Securities Exchange to enhance shareholder value. Today, Cordlife is the market leader in Singapore with a strong presence in Hong Kong and holds a 10% indirect stake in China’s largest cord blood bank provider, China Cord Blood Corp.

Figure 1: Revenue breakdown by segment, FY12 Figure 2: Revenue breakdown by geography

Source: Company, Maybank KE Source: Company, Maybank KE

Figure 3: PBT breakdown by country Figure 4: PBT breakdown by geography, FY12

In 2011 and 2012, revenue in Singapore declined due to global financial crisis. Also in FY12, Cordlife incurred listing expenses of SGD1,902 and gross profit margin declined by 1% due to additional costs incurred to comply with stricter requirement of AABB accreditation. Source: Company, Maybank KE

*Insignificant, from few customers who wish to store cord blood in Singapore instead of their home country as Singapore is perceived to be safer. Source: Company, Maybank KE

Figure 5: Major shareholders profile Major Shareholder Details Well Springs Ltd Wholly-owned by Tai Tak Estates Sdn Bhd, one of the major shareholders of UOB. Tai Tak Estates, which owns a 4.3% stake in UOB, is the

family investment company of Ho Sim Guan, a former executive of UOB.

Coop International Pte Ltd Wholly owned subsidiary of Bonvests Holdings Limited, a SGX listed company that is in real estate (Liat Towers, Sheraton Hotel), operate waste collection, disposal and contract cleaning (via stake in SGX-listed Colex).

Golden Meditech Holdings Ltd Listed in Hong Kong Stock Exchange (801 HK). It develops, manufactures and sells blood recovery machines (ABRS Machines), portable machine and disposable blood processing chambers and related accessories. It also holds 41.9% equity interest in CCBC.

Source: Maybank KE, Company

Cord blood, 97.6%

Cord tissue (only offered in

HK), 2.4%

16,843 20,290 19,214 21,692

5,741

7,873 6,459 7,083

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35,000

2009 2010 2011 2012

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6,893 9,039 8,250

5,589

784

10,621

(374) (394)

679 675 1,960

2,446

2,947

(2,000)

-

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4,000

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12,000

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16,000

2009 2010 2011 2012 2013F

Singapore HK China (S$'000)

135

North Asia (HK & 10%

stake in CSCS China),

27% South Asia (Singapore, Philippines*

& Inodnesia*),

73%

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Dominant market leader on home ground. Cordlife holds 62% market share in Singapore, where it is one of only two players. The other is Stemcord. A combination of factors has helped Cordlife to stay ahead of its competitor – adoption of the latest technology (SEPAX® 2, an improved automated stem cell processing system), maintaining accreditation with the gold standard accrediting body AABB, flexible payment options (three payment plans) and comprehensive insurance cum protection system. In April 2013, Cordlife shifted to A’Posh Bizhub in Yishun, its fully-owned facility with storage capacity of up to 650,000 cord blood units (from 60,000 units previously), making it the largest private cord blood storage facility in Asia. Figure 6: Cordlife’s new facility – A’Posh Bizhub in Yishun

Source: Company, Maybank KE Second largest player in Hong Kong. There are three major players in Hong Kong, with Cordlife the second largest in terms of market share. Replicating its business model in Singapore, the company has steadily grown its market share through word of mouth instead of resorting to costly and ambitious campaigns adopted by its leading competitor, Healthbaby. Figure 7: Market share breakdown in Hong Kong

*Halted operation in HK in 2011. Source: Company, Maybank KE

Healthbaby, 45%

Cordlife, 28%

Cryolife, 23%

Smart Cells* & Asia Pacific Stem

Cell, 4%

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10% indirect stake in China Cord Blood Corp. In Nov 2012, Cordlife successfully exchanged its 10% equity stake in China Stem Cells (South) Co Ltd (CSCS) along with an additional payment of USD4m for a 10% stake in China Cord Blood Corp (CCBC), which is publicly traded on the NYSE. As a result, CSCS is now wholly owned by CCBC. CCBC is one of the top cord blood bank operators in China with 62% market share. It holds majority stakes in cord blood banks in Beijing, Guangdong and Zhejiang, as well as a 20% stake in Shandong Cord Blood Bank. In FY12, CSCS recorded a profit after tax (PAT) of SGD20.1m whereas CCBC’s was SGD24.6m. In our view, the share exchange is likely to be earnings accretive to Cordlife. Cordlife’s CEO, Mr Jeremy Yee, was also appointed to the CCBC’s board of directors as an independent non-executive director, further cementing the ties between the two companies. Figure 8: Major cord blood banks in China, 2011

Source: Various companies’ listing prospectuses Acquisition of PII operations. Cordlife announced on 17 May 2013 that it has entered into a conditional sale and purchase agreement with its former parent company to acquire the latter’s cord blood and cord tissue banking businesses and assets in India, Philippines and Indonesia. The acquisition was completed last week. These operations have been established for four years and are currently leaders in their respective markets.

Figure 9: Market leadership position

Source: Company, Deloitte & Touche Financial Advisory Services

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Sound industry with abundant upside potential Specialised healthcare player. Private cord blood banking, an industry almost unheard-of a few years ago, is fast gaining popularity among parents as a result of increasing awareness, government support (in Singapore), advances in cord blood stem cell technology (able to cure more than 80 diseases today) and a growing number of successful transplant cases. Cordlife alone has contributed to nine successful transplant cases in the past 11 years of operation. Opting to store an infant’s cord blood can be viewed simply as opting in to an insurance policy, except that there is only a small window of time to make the decision and the stored cord blood does not only benefit its owner, but also has a good chance to help its owner’s blood-related family members. Figure 10: Importance of cord blood storage

Source: Company Monetising cord blood storage. To facilitate the storage of a newborn’s cord blood, Cordlife provides three flexible payment plans (Figure 12). Profit margins are superb too at over 70% gross and 23% net. The margin decline over the years is not a concern, due mainly to compliance with stricter AABB requirements while net margin fell on higher marketing expenditure to improve penetration rate. In FY13, we expect Cordlife’s margin to improve as it has fixed its rental costs and the promotion of its new product can ride on the existing marketing channel. Figure 11: Cordlife’s gross and net margins

Source: Company

73% 73% 71% 70%

29% 28% 26% 23%

22.6

28.2 25.7

28.8

6.5 7.8 6.8 6.7

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Figure 12: Payment plans offered by Cordlife

Total payment 6,950 6,700 6,200

Source: Company

Recurring income for 21 years (18 years in Hong Kong). Cordlife does not just earn a one-off profit when customers sign up; it will continue to earn recurring income from existing customers in the form of storage revenue over the contract term. It recognises revenue using the percentage of completion method - 88% of revenue is recognised upon signing the contract with the remaining 12% distributed evenly across 21 years based on the contract term. We estimated that Cordlife recognises base revenue of SGD1.2m each year (12%/21 years x S$6,200 x 32,800 units beginning FY12) based on an estimated 40,000 cord blood units in storage, or 4% of FY12 revenue. In future, we expect the quantum of recurring revenue to be proportionate with new sign-ups.

Perpetual revenue upon contract renewal. Revenue from a customer may not necessarily terminate at the end of the contract term. The rationale for all contracts being fixed for a period of 21 years is that this is the age at which a child ceases to be a minor (prior to which the parents are allowed to act as custodians of their child’s cord blood). When a customer reaches the age of 21, a new contract may be signed between Cordlife and its now-adult customer for annual storage. Fees will be charged up to the point where a customer discontinues the storage of their cord blood or defaults on payment. Research shows that theoretically, ordinary cord blood can be stored for 1,000 years. The implication is that every customer has good potential to contribute a lifetime’s worth of revenue to Cordlife.

Stable recurring cash flow and positive working capital. Cordlife’s offering of long-term installment plan also results in stable recurring cash flow. The company currently has around 25,000 customers who pay SGD250 pa each under its annual and 10-year payment plans for cord blood storage. As such, Cordlife will enjoy a base cash flow of at least SGD6.25m each year for the next 10 years. Furthermore, we are starting to see Cordlife generating stronger positive working capital, as it does not offer any installment plans for the newly launched umbilical cord service and most customers in Hong Kong have elected to pay for the services in a lump sum.

Near-zero default rate. Due to the nature of the business whereby defaulting on payment would lead to cord blood storage being discontinued, default risk is not a major concern. From FY09-12, annual payment customer defaults accounted for less than 0.5% of revenue.

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Management clarifies that Cordlife enjoys a zero churn rate. The defaults normally are triggered by customers who failed to receive their payment invoices as they shifted or moved to overseas and forgot to update their change of address. Most of these customers actually do continue payment when Cordlife manages to contact them.

Ample room for growth. There is plenty of room for the industry to grow, primarily due to its low penetration rate (i.e. the percentage of infants whose cord blood is stored) and high birth rate (especially in emerging markets). According to market research conducted by DTFAS, from 2011 to 2015, the penetration rate in Singapore, Hong Kong and China will grow at CAGR of 9%, 8.5% and 23% respectively. For its emerging markets operations in PII, the penetration rate is estimated to grow at a CAGR of 20-35%. In order to realise this potential, especially in emerging markets, Cordlife would have to spend more on marketing and sales to educate the public as to the benefits of cord blood banking.

Figure 13: Cordlife’s penetration rate in developed markets

Source: Company, Deloitte & Touche Financial Advisory Services Figure 14: Cordlife’s penetration rate in developing markets

Source: Company, Deloitte & Touche Financial Advisory Services

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Tried-and-tested business strategy to be replicated across regions. Cordlife’s unique tried-and-tested business model, which is built on product differentiation, can be easily replicated across its overseas operations to improve penetration rate and gain greater market share. Cordlife offers flexible installment plans (the only provider of such plan in Hong Kong), comprehensive insurance-like protection (only player which provides US$25,000 to defray medical expenses if cord blood unit lose its viability and suitable matches cannot be located at point of transplant), and umbilical cord patented technology which is exclusively available at Cordlife.

Reaping benefits of developed and developing markets. Cordlife’s key markets appear to be at different stage of the industry life cycle. The penetration rates in Singapore, Hong Kong and China are 19%, 19% and 2% respectively in 2011 but 0.1% in emerging countries such as India, Indonesia and the Philippines. Against this background, Cordlife will be able to benefit from both excellent cash generative and high growth potential markets. Figure 15: Industry life cycle

Source: Maybank KE Taiwan, South Korea more established with wider product range. Taiwan and South Korea’s markets enjoy penetration rate of 25-30%, the highest in the world. Key players include Bionet in Taiwan and Medipost in Korea. Bionet is the pioneer of private cord blood banking service in Taiwan (see figure 31 for their key financial information). It also focuses on modern bio-technology, stem cell therapeutic application and genetic testing. Currently, it offers eight types of services (compared to Cordlife’s two): • Cord Blood Banking (known as the 1st generation of stem cell) • Umbilical Cord Mesenchymal Stem Cell banking (2nd generation) • Dental Pulp Stem Cell banking (3rd generation) • Stem Cell Revitalizer for cosmetology, • Early-stage genetic diagnosis for Spinal Muscular Atrophy • Serum-based screening for Down Syndrome • Pre-Implantation Genetic Diagnosis Medipost’s product and services range are also wider than Cordlife’s, providing not just private/public cord blood banking but also research of adult stem cell drugs and nutritional supplements. Product scope expansion. Taking a leaf out of these players, we see plenty of opportunities and expect Cordlife to pursue product scope expansion and utilise its existing regional platform as a distributing point.

Penetration rate

Revenue

Sg HK

China, India, Indon & Phil

Taiwan & Korea

10% 20%

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Porter’s Five Forces Analysis Summary. Overall, we think Cordlife possesses excellent competitive advantages, operating in a specialised healthcare segment with high barriers of entry, low threat of substitutes and low bargaining power of customers. This puts it in good stead to deliver above-average performance for the long term. Barriers of entry – High Strict licensing requirement. In Singapore, the Ministry of Health

(MOH) is unlikely to issue any new license for cord blood banking in the near future as MOH requires established presence in the form of fully functional facilities and fully operational team in Singapore before an entity is allowed to apply for a license. In Hong Kong, the market is dominated by three players and is highly competitive, making entry unfeasible. In China, only 10 provinces have been permitted to establish a cord bank each up until 2015 and eight cord banks so far have been authorised to operate. CCBC, in which Cordlife has a 10% stake that could be raised in future, currently holds majority shares in Beijing, Guangdong and Zhejiang cord blood banks and a minority 20% stake in Shandong Cord Blood Bank.

Established brand name and successful transplant cases.

Following years of brand building, Cordlife has emerged as a well-known brand and is often the first choice among parents. Above all, it has a strong track record of successful transplant cases (nine in 11 years).

Economies of scale. Expensive machinery and equipment, high

rental costs and significant marketing expenses are some of the fixed costs hindering small players from developing. For Cordlife, it recently shifted to its fully-owned facility, A’Posh Bizhub, in Yishun. This facility can store up to 650,000 cord blood units, allowing Cordlife to achieve economies of scale for storage costs as it scales up its storage capacity. Moreover, the company currently uses SEPAX® 2, an improved automated stem cell processing system. This expensive Swiss-made and US FDA-cleared device can recover up to 99% nucleated cells from cord blood, i.e. a cell count up to 57% higher than normal processing methods.

Threat of substitutes – Low Public cord blood bank. Although some argue that the growing

public cord blood bank might provide higher probability of finding a matching unit, there is still nothing better than having a ready protection in place, not only for the donor but also for his entire family. Moreover, once a cord blood is donated, there is no guarantee that it will be available when needed or even that it will be stored at all. The Singapore Cord Blood Bank in its study in 2012 revealed that each year, around 40-60% of patients requiring transplants were unable to find a suitable match from the public cord blood bank.

Medical breakthroughs. It is possible that significant scientific

breakthroughs in another field (e.g. genetic engineering) may render stem cell technology obsolete. Given the current pace of medical development, we think it will still be some time before that breakthrough is achieved. Stem cell research, in fact, is still considered to be in its infancy and there is every chance that it can substitute other forms of medication in the future (e.g. scientists are

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studying the possibility of replacing the cells of other tissues with cord blood cells).

Bargaining power of customers – Low Price takers. Given the limited number of service providers, strong

product differentiation, minimal price differences and well-entrenched private cord blood banks, customers are price takers.

Bargaining power of suppliers – Strong Equipment provider. The use of specialised equipment and

consumables ancillary to the use of the device provided give equipment suppliers strong pricing power.

Medical laboratory. Prices are average as it is easy to switch

suppliers. Medical personnel. Strong bargaining power as such personnel

are crucial in the cord blood extraction stage. Competition – Average Singapore. Competition is average with only two players in the

industry. Cordlife is able to keep its lead by offering differentiated, high-quality services (through maintaining highest accreditation and adopting the latest technology), coupled with a comprehensive protection plan.

Hong Kong. Competition is high with Cordlife and two other major

players vying for a limited number of customers. Since January 2013, the government of Hong Kong has banned expectant mothers from China from giving birth in the territory. This has deprived private cord blood banks of their main target customers as only infants born in private hospitals are allowed to store their cord blood in private cord blood banks. Furthermore, Healthbaby, one of Cordlife’s leading rivals, has become more aggressive in its marketing in a bid to grow market share. That said, Cordlife is the only provider in Hong Kong to offer customers flexible payment plans, i.e. a lump sum payment or installment plans spread over either 10 or 21 years. This should help widen its customer base in the different wealth categories as the less wealthy are usually reluctant to fork out a huge amount of cash upfront.

China. Competition is low given the central government’s “one

licence per region” policy. As a result, the cord blood banks in the licensed regions enjoy monopoly position.

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Singapore – abundant opportunities at home In the lead and poised to increase market share. Of the two private cord blood banks in Singapore, Cordlife is the dominant player. It differentiates itself as a premium service provider by banking on its solid foundation, highest international accreditation, adoption of the latest technology, comprehensive protection plan, proven transplant track record (the only local private cord blood bank with a published record of successful cord blood transplant and application), long-term storage guarantee, enhanced reputation and brand name through a public listing, state-of-the-art facility at A’Posh Bizhub, and Cordlife Circle exclusive membership programme. In our view, the company is well-placed to gain greater market share. Figure 16: Competitive advantages of Cordlife

Solid foundation and AABB accredited. Cordlife is the longest operating private cord blood bank in Singapore since 2001. In addition to the licence issued by MOH, it is also Southeast Asia’s first private cord blood bank to be accredited by AABB, a world-class standard in cord blood banking. AABB accreditation gives families and physicians the assurance that the cord blood units have been processed and stored in accordance with the highest international standards. Adoption of latest technology. Cordlife is the only private cord blood bank in Singapore that uses SEPAX® 2, an improved automated stem cell processing system. This is a Swiss-made and US FDA-cleared device that can recover up to 99% total nucleated cell from cord blood, ie, a cell count up to 57% higher than normal processing methods. This enables the beneficiary to get more stem cells for a successful transplant. Cordlife CARE360o Safeguard Programme. Designed to deliver holistic protection for its customer and family, this programme’s unique Cordlife PLEDGE360o feature offers assurance of a cord blood unit of suitable match or USD25,000 to defray medical costs if the cord blood unit loses its viability at the point of transplant. On 18 April 2013, Cordlife became the first private cord blood bank in Asia to launch a pregnancy complication and congenital illness coverage plan called Cordlife Shield:360. The plan seeks to provide additional safeguard and greater peace of mind for expectant mothers (for details, see Figure 17). Proven transplant track record. Cordlife has successfully released nine blood units to its clients (seven in Singapore and two in Hong Kong) for treatment, while its associates have released over 250 cord blood units. In Singapore, Cordlife is the only private cord blood bank with a published successful cord blood transplant and application track record. This track record is the ultimate validation of Cordlife’s processing and storage methods.

Long-term storage guarantee. In the remote possibility that Cordlife ceases operations, the company has given the assurance that it will assign its customers’ cord blood stem cells to another private cord blood bank of the same quality standards and at no extra cost. Listed on SGX. Attaining listing status is a major achievement for Cordlife, serving as a platform to enhance its reputation and brand name as it will be subject to stricter regulatory requirements and increased public oversight. Highly secured storage facility. Cordlife’s facility at A’Posh Bizhub has passed stringent audits conducted by AABB and MOH. The infant’s cord blood will be stored in vacuum insulated cryogenic storage tanks and housed within fire retardant walls designed to remain at optimal temperature for cell storage over long periods. Its laboratory is equipped with multiple backup systems, such as backup generator, backup mobile storage tank and backup liquid nitrogen tank, to ensure that the tanks are secured and monitored at all times. Cordlife Circle exclusive membership. Customers can enjoy attractive discounts and exclusive privileges when patronising selected Cordlife Circle merchant outlets, which offer products and services ranging from maternity and infant products to food and beverage, health and wellness, and enrichment programmes.

Source: Company, Maybank KE

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Figure 17: Cordlife CARE360o Safeguard Programme

Source: Company

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Figure 18: Cordlife’s transplant track record

Source: Company

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Newly-launched umbilical cord banking. Cordlife launched its umbilical cord banking service on Mother’s Day on 12 May 2013. Being the sole service provider with a strong track record and well-established network, we expect a good take-up rate for this service. Unlike cord blood which is made up of mostly haematopoietic (blood forming) stem cells, or HSCs for short, umbilical cords contain high numbers of epithelial (EpSCs) and mesenchymal (MSCs) stem cells, which have shown immense potential in aiding the repair of injured tissues and organs and the treatment of various diseases. Although there is evidence that MSCs can be changed into certain types of epithelial cells, the latter cannot be changed into EpSCs. The difference between epithelial stem cells and epithelial cells is that the former can differentiate into different epithelial cell types such as skein, cornea and lining of the gut on demand, whereas the (non-stem) epithelial cells have already reached terminal differentiation so they cannot be further changed into different epithelial cell types when needed. In short, MSCs and EpSCs cannot replace each other (for details, see Figures 21–23). Figure 19: Singapore – umbilical cord storage price Service Price MSCs + EpSCs (5 years contract) SG$5,450 MSCs (5 years contract) SG$3,450 Source: Maybank KE, Company Figure 20: Hong Kong – umbilical cord storage price*

CordPlus Umbilical Cord Storage Plans (MSCs + EpSCs)

Contract Plans 5 Years Plan 10 Years Plan 18 Years Plan

Enrollment Fee (non-refundable)

320 *Account Establishment

*Cord Collection Kit

Processing and Testing Fee

6,795

*Laboratory Processing & Testing

Storage Fee (Cryopreservation) 1,119 2,079 3,118

(5 years) (10 years) (18 years)

Total 8,234 9,194 10,233

CordBasic Umbilical Cord Storage Plans (MSCs)

Contract Plans 5 Years Plan 10 Years Plan 18 Years Plan

Enrollment Fee (non-refundable)

320 *Account Establishment

*Cord Collection Kit

Processing and Testing Fee

2,159

*Laboratory Processing & Testing

Storage Fee (Cryopreservation) 1,119 2,079 3,118

(5 years) (10 years) (18 years)

Total 3,598 4,557 5,596

*Converted directly from HKD Source: Company, Maybank KE

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Figure 21: Umbilical cord and the advantages of banking it

Source: Company

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Figure 22: Treatable diseases and potential applications

Source: Company

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Figure 23: Collection, processing and storage of umbilical cord tissue

Source: Company

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Indirect government subsidies. To boost fertility rate, the Singapore government has in January this year increased the baby bonus by 50% to SGD6,000 each for a couple’s first two children and SGD8,000 each for the third and fourth children. It also extended the Child Development Account (CDA) scheme, where parents’ savings will be matched dollar-for-dollar up to the cap of SGD6,000 each for the first and second child, SGD12,000 each for the third and fourth child, and SGD18,000 each for the fifth and subsequent child. As Cordlife is a CDA-approved organisation, customers can use funds in their CDA to pay for the company’s services. This is likely to boost Cordlife’s revenue in terms of improved penetration rate and increased birth rate. As many of its existing clients already tap into their CDA funds to pay for services, the extension of the scheme, as well as higher baby bonuses, will see a higher number of parents being able to afford the storage of their children’s cord blood stem cells. Enhanced disposable income for lower-wage workers. Under the Wage Credit Scheme (WCS) introduced in Budget 2013, the government will co-fund 40% of the wage increases given to Singaporean employees earning a gross monthly wage of up to SGD4,000 in 2013-2015. The rise in income for the lower-income group will render Cordlife’s product more affordable and perhaps, increase the number of its potential customers. Figure 24: Eligibility for WCS

Source: IRAS Reduced rental costs and potential rental income. In early 2013, Cordlife shifted to A’Posh Bizhub in Yishun, its fully-owned facility. The move reduces its reliance on rented storage spaces and considerably lowers the uncertainty of rising rental costs, which have squeezed the margins of many a business in Singapore. We expect Cordlife’s gross margin to have improved by at least 1%-point in FY13F as a result of reduced storage cost. In the future, economies of scale will be achieved as the storage cost per unit falls further when Cordlife increases the number of units in storage. In addition, we expect Cordlife will be able to earn rental income of around SGD184,800 pa (11,000 sq ft at SGD1.4 psf) as it rents out additional space in A’Posh Bizhub.

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Hong Kong – enhancing efficiency and innovation Low impact of government ban. In Jan 2013, the Hong Kong government imposed a complete ban on women from mainland China delivering at public hospitals in the territory. Only women who are from Hong Kong or whose husbands are from Hong Kong can deliver in private hospitals. The ban, however, had little impact on Cordlife’s bottom line as its Hong Kong operations have been near breakeven since FY11 and swift action has been taken to reduce cost. The company’s recent 3QFY13 results showed that earnings were sustained despite the ban.

Headcount cut to raise efficiency. To mitigate the impact of the ban and turn around its operations, Cordlife’s management acted swiftly and slashed headcount in Hong Kong by almost half by Apr 2013. It is also considering moving into a smaller office. After eliminating idle costs, we expect its Hong Kong operations will turn profitable.

Incorporating flexible payment plans for cord tissue banking. In Hong Kong, Cordlife is the only cord blood bank that offers long-term installment plans for its cord blood banking service. This enables it to attract a wider customer base, given that there are clients who cannot afford or feel uncomfortable paying huge lump sum fees for 18 years of services. However, flexible payment plans have yet to be offered for its more expensive umbilical cord tissue banking service. To better cater to the market, Cordlife plans to make flexible long-term installment plans part of its cord tissue banking service.

Customers flowing back to China. The ban in Hong Kong is expected to benefit Cordlife’s China operator (a 10% indirect stake in CCBC with operations in four provinces) as target customers will flow back into China.

Possible reversal of populist ban policy. On the policy side, some are calling for the Hong Kong government to review its population policy and consider reversing its populist ban policy as the territory faces issues of low fertility and birth rates. Private hospitals, gynecologists, obstetricians and aesthetic doctors adversely affected by the ban are also putting pressure on the government to amend its birth nationality law (such as in the UK) rather than retaining its ban that drags down the entire childbirth industry.

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PII – potential high-growth markets Golden opportunities await. The PII markets are still in their infancy where the cord blood banking industry is concerned, given the high birth rate in these countries and the low penetration rate of the industry. Based on the PII’s historical revenue CAGR of around 60%, signs of profit turning around and the growing middle-income group, Cordlife’s newly acquired entities should perform well enough in the medium term.

Figure 25: Growth drivers in the Philippines, Indonesia and India Country Growth drivers Details Graphs

Philippines Number of new births

Philippines has a large population base of 102 million as of 2011, and is expected to reach 110 million in 2015.

Public perception of cord blood banking

• Both the government and private cord blood banks are trying to promote cord blood banking to the general public.

• Private cord blood companies are promoting their services through internet , magazine, and various events.

Wealth profile

One of the Asian markets with a burgeoning middle class • Per capita disposable income is projected to increase

157% from 2007 to 2015. • Increase consumption as well as changing purchasing

patterns, such as increased expenditure on healthcare.

Healthcare system

Universal health system, PhilHealth, has more than 86% of citizens enrolled. Some of the packages cover stem cell related transplants. Compared with other developing markets in Asia, Philippines has a well developed healthcare system.

Indonesia Public awareness

• The public awareness level of cord blood banking in Indonesia is still low, its penetration rate was only 0.045% in 2011 but it is expected to rise in the next few years.

• Promotion activities by private cord blood banks, such as leveraging SNS, will also contribute to the popularity of cord blood banking

Wealth Profile

• Per capita disposable income is expected to increase 97.5% from 2007 to 2015.

• Indonesia will have over 20 million households withannual income of over USD 10,000 in 2015, an increase from around 14 million in 2011.

Large population base

Indonesia is now the world's fourth most populous nation. The number of annual new births is expected to maintain at a high level of over 4 million per year.

India Large new

birth base • With a total population of 1,202 million people, India has

the second largest population in the world. • Annual new births of 25.7 million are forecast by the end

of 2016. • The number of new births is likely to keep rising as India’s

population is predicted to exceed China, becoming the most populous nation by 2025.

Increasing public awareness

• An educated and expanding middle class, who have access to information as a result of widespread internet use

• Due to competition, private cord blood banks conduct intensive marketing efforts about cord blood storage and offer financing programs for subscribers.

• Indian doctors are encouraged to inform expectant parents to opt for stem cell banking with cord blood banks.

Technology development

• A higher stem cell transplant success rate, due to India’s leadership pharmaceutical and biotechnology areas in Asia.

• Success rate of cord blood transplants is reported at around 90%, comparatively higher than that of other markets.

Growing middle-class

The population of the Indian middle class—the target consumers for private banks—is expected to increase to 267 million by 2015, or 67% from the current level of 160 million.

Source: Company, Deloitte & Touche Financial Advisory Services, Maybank KE

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Riding the boom in China 10% stake in leading player. Last November, Cordlife successfully exchanged its 10% equity stake in China Stem Cells (South) Co Ltd (CSCS), a private company that is the sole cord blood bank operator in Guangdong province, for 10% ordinary shares in CCBC, which already owns 90% of CSCS and is publicly traded on the NYSE. The deal saw Cordlife paying additional proceeds of USD4m. It also means that Cordlife will be able to ride the extraordinary growth in China through CCBC, the sole cord blood bank operator in Beijing, Guangdong (through CSCS) and Zhejiang, and which holds a 24% stake in the Shandong operation. Figure 26: CCBC’s market in China

Source: CCBC, Maybank KE Eyeing higher stake in CCBC. Cordlife has indicated the possibility of raising its stake (or even merge) in CCBC as part of its long-term plan. It has had a good start in the recent acquisition of CCBC and the appointment of Jeremy Yee, its CEO, as an independent director on CCBC’s board. In addition, a strong strategic partnership is already in place as CCBC also holds an indirect 10.47% stake in Cordlife.

Strong shareholder presence. The largest shareholder of CCBC is Golden Meditech (around 42% stake), a leading integrated healthcare enterprise in China and listed on the Hong Kong Exchange. The second-largest shareholder is KKR China Healthcare, an established fund management firm which has an implied stake of around 25% in the form of convertible bonds. We believe KKR plays a strong support and scrutiny role in ensuring CCBC’s sound performance.

Extraordinary growth market. China has always been known as a lucrative market with high barriers of entry due to its semi-open government policy and other factors.

Figure 27: China – favourable industry factors

Source: CCBC

CCBC (traded in NYSE)

Beijing Guangdong (CSCS) Zhejiang

Shandong

24%

Major shareholder

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Dominant market leader in China. CCBC is the dominant market leader in China as it is the only operator with multiple licences. It has a strong presence in four provinces (24% stake in Shandong province) and where only seven provinces were authorised to provide cord blood banking service. Figure 28: CCBC’s operations overview

Source: CCBC Consistently favourable growth. CCBC’s financial results point to consistently favourable growth since 2009. Its new subscriber sign-ups and total units stored have also grown steadily at an average rate of 9% and 7% each quarter respectively. Figure 29: CCBC’s financial summary

Source: CCBC

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Deeply undervalued healthcare stock Highly accommodative key market. As mentioned, Cordlife’s strong competitive advantage especially in Singapore, constant innovation (multiple flexible payment plans and new products), and favourable operating environment (leader in low competitive environment in Singapore, high-income countries with considerably low penetration rate and indirect government subsidies) enable it to outperform its global cord blood banking peers in terms of margins (Figure 31). To facilitate comparison with peers that do not offer installment plans, we have removed the impact of stricter revenue recognition requirement for installment plan payment which would require future installments to be discounted at 10%. Compared to the higher number of cord blood banks in other countries, the operating environment in Singapore is very accommodative. For instance, there are four AABB-accredited private cord blood banks in Taiwan alone. Despite the high penetration rate in the island, it is not an attractive place to operate in as competition is intense, product differentiation will be difficult to achieve and pricing power will be weak. This probably explains the higher margins Cordlife enjoys vis-à-vis its global peers.

Figure 30: Top 15 countries for cord blood banking

Source: Bioinformant

Better positioned than cord blood banking peers worldwide. We believe Cordlife should be trading above many of its global peers who provide cord blood banking (refer to figure 31) as they 1) do not have strong regional presence such as Cordlife (Cordlife has established presence in 6 countries whereas all of its peers only operate in their home countries), 2) are not offering or are not allowed to offer wider scope of product/services (e.g. CCBC is restricted from offering services other than cord blood banking), and 3) are not operating in markets with excellent growth potential; this applies especially for players in Western countries where penetration rate has remained at only around 5% for years due to disparity in culture, behaviour and heavily-subsidized healthcare system which do not incentivise Westerners to be concerned about the future health of their children.

Bionet Corp, the future gauge to expand product scope. As mentioned previously, Bionet offers eight products/services which focus on stem cell therapeutic application and genetic testing. Taking a leaf out of Bionet, we believe Cordlife will be moving towards the direction of increasing its product scope which will focus on the baby healthcare related market to achieve better utilisation of its current resources and wide distribution network. If it succeeds, we expect Cordlife’s valuation to trade closer to Bionet’s 40x PER. That said, Cordlife already outperforms Bionet in term of market reach as Bionet merely operates in Taiwan.

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Healthcare product distributor/retailer, the right peers. Given Cordlife’s plan to expand its product base and its light asset nature, we expect Cordlife’s operating and financial characteristics to tilt towards those players in the distributing/retailing sector of healthcare products. For that, we expect Cordlife to at least attain the valuation multiples of those peers (refer to Figure 31). Moreover, we believe Cordlife can fare better than many of those peers since it will be able improve its already high margin by rolling out products through its existing channels.

Current valuations ignore Cordlife’s proximity to local healthcare peers and unique best-in-class position. We believe Cordlife has been denied the valuation multiples of a traditional healthcare stock because the market fails to realise its increasing similarity to its local healthcare peers (low risk, strong recurring earnings and high-growth potential). Arguably, Cordlife has already distinguished itself from traditional healthcare peers in terms of strong local competitive advantage, constant innovation, light asset based, distinct product differentiation and favourable operating environment (low competition, high income country with low penetration rates and government subsidies). This has spawned above-average margins (Figure 32) and ROEs, as well as provided abundant growth opportunities.

Expect significant recurring EPS growth. As part of its constant growth plan, Cordlife has completed the acquisition of PII entities last week and launched its umbilical cord banking service in Singapore in May 2013. Since this is complementary to its existing cord blood banking service, we do not expect additional costs to be significant. We expect the new revenue stream coupled with contribution from PII entities to lead to recurring double-digit EPS growth.

Figure 31: Global peers comparison

Share Market PE (x) EPS growth (%) Price/ PEG Gross Op Net Div

price Cap Historic Current Forecast Current Next Yr book ROE Margin Margin Margin Yield

(lcl curr) (USD m) (x) (x) (%) (%) (%) (%) (%) Cord blood banking peers Bionet Corp (TWN) 51.4 85.9 31.5 40.0 N.A. 182.6 N.A. 2.2 N.A. 5.7 68.3 16.5 10.6 N.A. China Cord Blood Corp (US) 2.81 205.1 12.2 12.3 12.8 -14.3 -8.3 1.0 1.4 9.2 79.7 39.8 21.4 N.A. Cryosite Ltd (AUS) 0.43 18.3 9.6 16.3 N.A. 212.9 N.A. 3.5 N.A. 22.7 49.6 9.9 13.2 4.7 Medipost (KOR) 62,500 392.2 335.4 204.2 82.5 -52.9 150.8 3.8 2.2 1.9 61.3 3.2 7.7 N.A. Cordlife Group Ltd* 0.88 161.4 13.5 20.7 15.4 11.9 34.7 2.7 0.9 15.9 70.0 21.3* 23.8* 2.3 Adjusted margin# 79.1 45.2 48.6 Average (excluding Cordlife, Medipost and outliers) 17.8 22.9 12.8 127.1 -8.3 2.2 1.4 12.5 65.9 22.1 15.1 4.7 Healthcare product distributor/retailer peers Sinopharm Group Co Ltd (HK) 19.48 6,450.0 23.8 18.8 15.9 24.2 18.0 2.2 1.0 12.1 8.1 3.5 1.5 1.3 Owens & Minor Inc (US) 33.83 2,142.3 15.2 18.4 17.8 -5.5 3.3 2.2 2.6 11.1 10.4 2.3 1.2 3.1 Patterson Cos Inc (US) 37.6 3,953.7 18.5 19.3 17.3 5.7 7.3 2.8 2.1 15.2 32.7 9.7 5.8 1.5 Ebos Group Ltd (NZ) 9.6 657.4 14.2 18.3 17.8 18.1 10.1 2.7 3.5 15.0 11.4 2.9 2.0 4.5 Celesio AG (EUR) 16.67 3,689.1 21.7 28.3 13.3 39.5 7.1 1.3 2.7 -4.7 10.9 2.0 -0.7 2.3 Enseval Putera Tbk PT (IND) 3500 955.2 11.7 23.5 N.A. 10.4 N.A 3.6 N.A. 15.7 10.7 3.7 3.0 N.A. Dimed SA Distribuidora (BRZ) 215 433.6 27.2 21.4 N.A. 25.8 N.A 4.0 N.A. 20.4 22.5 4.5 3.1 0.9 Amplifon SpA (EUR) 3.846 1,120.5 18.8 21.9 17.6 0.1 12.4 1.9 1.4 9.1 N.A. 11.7 5.1 1.1 Ship Healthcare Hds Inc (JP) 3,650 1,520.0 15.7 17.5 16.7 22.2 5.1 3.6 3.0 22.3 13.8 5.6 3.8 1.4 MWI Veterinary Supply Inc (US) 123.24 1,576.6 25.2 26.5 25.2 24.0 15.6 4.0 1.9 16.4 12.9 4.1 2.6 0.0 Oriola-KD OYJ (EUR) 2.28 449.9 19.6 20.0 14.6 N.A. -45.3 1.1 1.5 5.6 14.4 1.1 0.7 2.2 Shandong Realcan Pharma (CN) 42.53 650.0 28.0 36.0 26.3 14.6 37.1 4.4 1.2 12.8 8.0 4.1 2.4 0.4 Cordlife Group Ltd* 0.88 161.4 13.5 20.7 15.4 11.9 34.7 2.7 0.9 15.9 70.0 21.3* 23.8* 2.3 Average (excluding Cordlife and outliers) 20.0 22.5 18.3 16.3 12.9 2.8 2.1 14.2 14.2 4.6 2.5 1.7 * After removing one-off item and share of results of associate # Removed the impact of stricter revenue recognition requirement for installment plan payment which requires future installment to be discounted at 10%. This is for better comparison with peers which do not offer installment plan. Source: Bloomberg, Maybank KE

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Figure 32: Cordlife vs global and local peers

Source: Bloomberg, Company, Maybank KE Outshines local peers. If we compare Cordlife to its local peers, Cordlife stands out as the top performer except with respect to its PER. Moreover, we think Cordlife has distinct advantages to its local peers (the general healthcare sector) as they operate in a more competitive environment which compresses their pricing power, and have to bear higher fixed operating costs. Another fact to highlight is Cordlife is in the early phase of its industry life cycle and we think the market generally has not fully grasped its earnings sustainability and the growth potential of this newly-emerging specialised healthcare player.

Figure 33: Comparison with local peers

Share Market PE (x) EPS growth (%) Price/ PEG

Gross Op Net Div

price Cap Historic Current Forecast Current Next Yr book ROE Margin Margin Margin Yield

(lcl curr) (USD m) (x) (x) (%) (%) (%) (%) (%) IHH 1.54 9,876.8 29.4 34.5 45.4 39.3 -25.4 1.8 5.8 5.9 N.A. 11.7 11.4 N.A. Raffles Medical Group Ltd 3.14 1,369.9 24.9 29.0 27.8 10.8 7.6 4.2 1.9 15.6 N.A. 19.9 18.2 1.7 Healthway Medical Corp Ltd 0.078 143.2 26.9 22.9 N.A. N.A. N.A. 0.8 N.A. 4.0 N.A. 4.4 9.3 N.A. Q & M Dental Group Singapore 0.275 131.3 38.5 30.2 12.5 9.6 N.A. 5.8 N.A. 17.8 N.A. 9.3 8.8 1.9 Health Management Intl Ltd 0.117 53.3 N.A. 72.2 0.3 N.A. N.A. 1.9 N.A. 2.7 25.2 7.6 -0.2 N.A. Pacific Healthcare Holdings 0.077 27.9 460.0 N.A. N.A. 59.6 N.A. 3.6 N.A. -96.2 N.A. -23.2 -16.2 N.A. Asiamedic Ltd 0.107 28.3 N.A. 436.7 N.A. N.A. N.A. 2.6 N.A. 0.6 N.A. -1.4 0.7 N.A. Singapore Medical Group 0.118 13.6 14.4 N.A. N.A. -37.5 N.A. 5.2 N.A. -19.2 41.2 -3.6 -5.1 N.A. Cordlife Group Ltd* 0.88 161.4 13.5 20.7 15.4 11.9 34.7 2.7 0.9 15.9 70.0 21.3* 23.8* 2.3 Average (excluding Cordlife and outliers) 26.8 29.2 28.6 29.8 7.6 3.2 3.9 9.2 33.2 10.6 9.7 1.8 * After removing one-off item and share of results of associate Source: Bloomberg, Maybank KE

79.1%

45.2% 48.6%

70.0%

21.3% 23.8%

65.9%

22.1%

15.1%

33.2%

10.6% 9.7% 14.2%

4.6% 2.5% 0.0%

10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%

Gross margin Operating margin Net margin

Cordlife (adjusted) Cordlife (unadjusted) Global cord blood peers average

Local peers average Global healthcare distributors avg

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Valuation assumptions for developed markets. In our valuation model (refer to figure 34), we assume that Cordlife’s operations in the developed markets will grow at a normal rate with marginal increase in penetration rate (5% growth rate for Singapore and 0.5% absolute increase for HK) and market share (absolute 1% increase for Singapore and 0.5% increase for HK). We have also incorporated its new cord tissue banking service in Singapore, for which we conservatively forecast a 0.7% penetration rate in Singapore for FY14F.

Figure 34: Key assumptions and estimations

2009 2010 2011 2012 2013F 1H 2HF 2014F 2015F

YE Dec (S$ 000) 30-Jun-09 30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 31-Dec-12 30-Jun-13 30-Jun-14 30-Jun-15

Total new customers FORECAST 7,898 4,450 3,448 7,509 8,076 North Asia (Mainly Singapore)

Live birth 39,570 37,967 39,654 42,600 41,300 21,300 20,000 40,000 41,000 Penetration rate (5% growth) 20.8% 24.5% 21.4% 21.9% 25.4% 25.4% 26.7% 28.0%

Market share 59% 62.4% 62.0% 62.0% 64.0% 64.0% 65.0% 66.0% Premature termination due to unsuitability for storage 5.0% 5.2% 5.9% 6.0% 6.0% 6.0% 6.0% 6.0%

New customers FORECAST 6,394 3,056 6,518 7,019 New customers ACTUAL 4,624 5,511 4,940 5,428 3,338 Penetration rate of umbilical cord tissue banking (Launched on May 2013) 0.7% 1%

South Asia (Mainly HK)

Live birth (censtads) 82,100 88,600 95,500 91,600 45,800 From PRC 41,000 34,400 17,200 banned

From HK 54,500 57,200 28,600 25,000 55,000 56,550

Private hospital to total delivery ratio 73% 75% 71% 69% 69%

Private hospital delivery 59,933 66,450 67,805 63,204 43,102 31,602 11,500 27,500 27,775 Penetration rate 11.0% 12.0% 10.8% 11.1% 12.5% 12.5% 13.0% 13.5%

Market share 25.0% 28.4% 24.0% 24.0% 29.0% 29% 29.5% 30.0% Premature termination due to unsuitability for storage 5.0% 5.2% 5.9% 6.0% 6.0% 6.0% 6.0% 6.0%

New customers FORECAST 1,495 392 991 1,057 New customers ACTUAL 1,576 2,139 1,660 1,772 1,113 Penetration rate of umbilical cord tissue (Launched on March 2011) 1% 2%

Source: ICA, Censtads, Company, Maybank KE

PII valuation. We value these developing market entities separately as they have distinctly different characteristics from their developed market counterparts, e.g. high spending requirement to improve penetration rate and compressed margins in the medium term. We expect the PII operations to start generating mild positive profits in FY14F. Using historical CAGR of 60% as our estimated revenue growth rate and a conservative 3.2% net margin (as high marketing expenses to increase penetration rate would still be required in FY14), we estimate these operations will contribute approximately AUD0.48m (SGD0.55m), which translates into SGD0.24 cents for FY14F EPS.

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Figure 35: Revenue of PII operations

Source: CBB, Maybank KE

Figure 36: Net profit of PII operations

Source: CBB, Maybank KE

Figure 37: Forecast earnings for developed and developing entities

Entities FY14F revenue

(SGD’000) FY14F net profit

(SGD’000) FY14F EPS (SGD cts)

Developed (SG, HK) 32.1 12.6 5.5 Developing (PII) 17.3 0.55 0.2 Total 49.4 13.3 5.7 Source: Maybank KE, Company

TP pegged at 23x FY14F. Being the best in class among its global and local peers in terms of margins, market position, regional presence and new products opportunities, we believe Cordlife should trade similarly to its global peers and closer to its local peers. We peg our target price of SGD1.29 at 23x FY14F, in line with its global peers and a 27% discount to its local peers which implies 47% upside from the current level.

229 229 661

1,066 1,466

1,969 2,271

104 104

645 602 693 775

1,323

803 803 676 707 838 820 1,044 1,136 1,136

1,982 2,375

2,997

3,564

4,638

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1H10 2H10 1H11 2H11 1H12 2H12 1H13

India Philippines Indonesia Total

CAGR - 60%

-424 (424) (396) (500) (524)

(238) (182) -317 (317)

(232) (382)

(170) (192)

259

-349 (349)

(879)

(636)

(396)

(622)

(58)

-1090 -1090

-1507 -1518

-1090 -1052

19

-1,800

-1,600

-1,400

-1,200

-1,000

-800

-600

-400

-200

0

200

400

India Philippines Indonesia Total

(A$'000)

(A$'000)

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Risks Alternative sources of stem cells. There are other sources of extractable stem cells in the human body, such as bone marrow and mobilised peripheral blood, which are normally extracted only when required. Although the collection of such stem cells might cause side effects as it involves surgical procedures, customers might prefer to rely on this method and choose not to store their children’s cord blood.

Negative publicity of private cord blood banking industry. Like many arenas in the medical field, there are opponents and proponents of private storage of cord blood. Opponents argue that private cord blood banks should be replaced by public ones and that there is only a slim chance of one actually using the cord blood stored in a private facility. Proponents cite the increasing number of successful transplant releases from private cord blood banks as proof that they are invaluable.

Reputation risk. Cordlife’s good reputation in the public and medical communities is vital to the continuation of its operation and pursuit of higher penetration rate. Any non-viability or contamination of the stem cell in storage might tarnish its good name. To prevent and mitigate the impact in the event any of the aforementioned occurs, Cordlife has put in place safeguards such as adhering to the stringent AABB requirements, regular auditing, backup containers and the Cordlife Pledge programme.

Competition. To fend off competition from existing or new players, Cordlife spares no efforts in maintaining its image as a value service provider. For example, it has committed to complying with AABB, the highest industry standard, and adopting the latest technology to provide higher nucleated cell extraction rate.

Reliance on key management and medical directors. Dr Ho Choon Hou, the chairman, and Mr Jeremy Yee Pinh, the CEO, have been instrumental in growing and developing Cordlife. In addition, Dr Chiew Yoke Fong and Dr Jennifer Teo Gek Choo, the medical directors licensed by the MOH, are responsible for the medical aspects of operations in Singapore and Hong Kong, respectively. The loss of any of its key personnel without a timely and suitable replacement may adversely affect Cordlife’s operations.

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Key management Mr Yee Pinh, Jeremy Chief Executive Officer Mr Yee was appointed Cordlife’s chief executive office in Jun 2011, having served as executive director since Jan 2004. He is responsible for identifying and implementing company-wide business growth strategies and organisational structures, as well as all aspects of Cordlife’s growth and operating functions. He was the chief financial officer of CBB from 2004 to 2011, where he was responsible for the group’s financial functions, including statutory filings, accounting audits, finance controls and treasury.

Dr Ho Choon Hou Chairman and Non-Executive Director Dr Ho was appointed in Jun 2011. He is currently a director at private equity firm Southern Capital Group, where he is responsible for the origination and execution of investments for the company’s clients. Prior to joining Southern Capital Group, Dr Ho held various medical portfolios in the healthcare industry. He served as Project Office Head and, subsequently, deputy director at the National Healthcare Group from 2004 to 2007, directing special projects and investments and holding general management responsibilities. From 1996 to 2004, he was the Registrar, Department of General Surgery, at Tan Tock Seng Hospital.

Ms Yeo Teck Geok, Gwendolene General Manager, Singapore Ms Yeo joined Cordlife in Dec 2002 as its clients relations executive. Her job scope included counselling direct consumers with regard to the benefits of cord blood banking. Currently, she is responsible for all functional and business units within Cordlife Singapore.

Ms Cheung Wai Yee, Emily General Manager, Hong Kong Ms Cheung oversees all functional and business units within Cordlife Hong Kong. She joined Cordlife in 2005 as office manager, taking charge of the day-to-day operations of the sales, administration and finance functions. She had served as a consultant to Cordlife from September to December 2004, assisting in identifying and selecting the location for, and the setting up of the office and laboratory with respect to the operations of Cordlife Hong Kong.

Ms Thet Hnin Yi Financial Controller Ms Thet joined Cordlife in Jun 2011 after its separation from its parent company, CBB. She currently oversees all areas of financial and accounting functions of Cordlife, including financial and management reporting as well as budgeting. She also supports the senior management team in their strategic decision-making process and liaises with external auditors in relation to the auditing and accounting matters of Cordlife. Ms Thet joined CBB in Dec 2007 as its senior finance manager where, among other things, she supported senior management in their strategic decision-making process and corporate risk management.

Dr Chiew Yoke Fong and Dr Teo Gek Choo, Jennifer Medical Directors Dr Chiew and Dr Teo are responsible for overseeing the medical and compliance functions of Cordlife’s laboratories in Singapore and Hong Kong, respectively. In particular, their scope of work includes attending to queries from the relevant regulatory authorities in relation to the operations of Cordlife’s laboratories. To minimise and preempt disruptions, Dr Chiew and Dr Teo also serve as back-ups for one another.

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PROFIT AND LOSS (SGD m) CASH FLOW (SGD m) FYE June 2011 2012 2013F 2014F 2015F FYE June 2011 2012 2013F 2014F 2015F Revenue 25.7 28.8 30.9 49.4 65.8 Operating cash flow 9.4 7.7 13.7 9.6 19.2 Cost of sales (7.4) (8.7) (9.3) (18.0) (24.6) Pretax profit 9.9 7.8 14.2 14.8 18.2 Gross Profit 18.3 20.0 21.6 31.5 41.2 Depreciation & amortization 0.6 0.7 0.8 0.9 0.8 Other income 0.4 0.1 2.7 0.2 0.3 Change in working capital 0.6 (0.6) 4.4 (2.4) 4.5 Selling & marketing exp (5.9) (6.9) (7.4) (11.8) (15.6) Others (1.8) (0.1) (5.8) (3.7) (4.4) Admin expenses (5.5) (9.2) (7.7) (11.3) (14.9) Investment cash flow (4.4) (20.1) (13.9) (6.8) (0.4) Share of results of associate 1.7 2.1 2.5 3.2 3.9 Capex (3.1) (2.4) (5.5) (3.6) (0.4) Operating profit 8.9 6.1 11.7 11.9 15.0 Others (1.3) (17.7) (8.4) (3.2) 0.0 Finance income (net) 1.0 1.7 2.5 2.9 3.3 Financing cash flow (7.3) 23.0 (1.8) (3.9) (6.1) Pretax income 9.9 7.8 14.2 14.8 18.2 Dividends 0.0 (4.7) (4.7) (5.1) (5.6) Income taxes (1.5) (0.9) (1.7) (1.8) (2.2) Net change in debt 0.8 1.7 2.9 (0.2) (0.5) Net profit 8.5 6.9 12.5 13.0 16.1 Issue of shares 0.0 29.7 0.0 0.0 0.0 Net profit (recurring) 8.5 8.8 9.9 13.0 16.1 Others (8.1) (3.7) 0.0 1.5 0.0 EPS (SG cents) 5.6 3.0 5.4 5.6 6.9 Net cash flow (3.6) 9.0 (3.3) (2.4) 11.0 Recurring EPS (SG cents) 5.6 3.8 4.2 5.6 6.9 Free cash flow 5.0 (12.4) (0.3) 2.8 18.8 EBITDA 9.5 6.8 12.6 12.8 15.8 Balance Sheet (SGD m) KEY RATIOS (SGD m) FYE June 2011 2012 2013F 2014F 2015F FYE June 2011 2012 2013F 2014F 2015F Total assets 55.4 90.4 107.0 110.8 126.8 Growth (% YoY) Current assets: 12.9 29.1 23.5 21.8 33.4 Sales -8.8% 12.1% 7.5% 59.9% 33.1% Cash 5.3 18.9 13.0 10.6 21.6 Operating Profit -1.2% -31.1% 91.6% 1.6% 25.6% Trade recievables 6.8 8.6 8.4 8.9 9.2 EBITDA 0.4% -28.2% 84.5% 1.8% 23.6% Inventories 0.2 0.4 0.3 0.5 0.7 Net Profit (recurring) 0.7% 4.2% 11.9% 31.9% 23.2% Others 0.6 1.2 1.9 1.9 1.9 EPS 2.5% -47.0% 81.0% 4.0% 23.2% Long-term assets: 42.5 61.2 83.5 89.0 93.4 Recurring EPS 2.5% -32.5% 11.9% 32.1% 23.2% Investment in associates 15.1 17.7 27.4 30.6 34.5 Profitability (%) PPE 4.3 6.1 15.1 17.8 17.3 Gross margin 71.1% 69.6% 70.0% 63.7% 62.7% Trade recievables 22.9 24.3 25.6 26.6 27.6 Operating margin 34.6% 21.3% 38.0% 24.1% 22.8% Fixed deposits 0.0 11.5 11.5 11.5 11.5 EBITDA margin 36.9% 23.7% 40.6% 25.9% 24.0% Others 0.2 1.7 4.0 2.5 2.5 Net profit margin 33.0% 24.1% 40.5% 26.4% 24.4% Total liabilities 14.8 19.2 28.0 27.1 32.6 ROA 15.3% 7.7% 11.7% 11.8% 12.7% Current liabilities: 8.0 8.3 11.9 9.9 13.9 ROE 20.9% 9.7% 15.9% 15.6% 17.0% Payables 2.3 2.8 6.5 3.5 6.7 Stability Bank overdraft and

0.0 0.1 0.2 0.5 0.5 Gross debt/equity (%) 2.1% 3.6% 6.9% 6.2% 5.0%

Deferred revenue 3.7 4.3 4.3 5.0 5.7 Net debt/equity (%) Net cash Net cash Net cash Net cash Net cash Others 2.1 1.1 0.9 0.9 0.9 Int. coverage (X) -8.5 -3.7 -4.7 -4.1 -4.6 Long-term liabilities 6.8 10.9 16.0 17.2 18.7 Int. & ST debt coverage (X) -8.9 -4.0 -5.2 -5.0 -5.4 Deferred revenue 5.9 8.2 10.5 12.2 14.3 Cash flow int. coverage (X) 3.4 -5.4 1.3 0.8 -3.4 Long-term borrowings 0.8 2.5 5.2 4.7 4.2 Cash flow int. & ST debt (X) 3.6 -5.8 1.4 1.0 -4.0 Others 0.1 0.3 0.3 0.3 0.3 Current ratio (X) 1.6 3.5 2.0 2.2 2.4 Shareholder's equity 40.6 71.2 79.0 83.7 94.2 Quick ratio (X) 1.6 3.5 1.9 2.2 2.4 Minority interests 0.0 0.0 0.0 0.0 0.0 Net debt/(cash) (SGD$ m) (4.5) (27.9) (19.0) (16.9) (28.4) Per share data (SGD cents) EPS 5.6 3.0 5.4 5.6 6.9 Recurring EPS 5.6 3.8 4.2 5.6 6.9 CFPS (2.4) 3.9 (1.4) (1.0) 4.7 BVPS 26.9 30.6 34.0 36.0 40.5

SPS 17.0 12.4 13.3 21.2 28.3 EBITDA/share 6.3 2.9 5.4 5.5 6.8 DPS 0.0 3.8 2.0 2.2 2.4

Source: Company, Maybank KE estimates

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RESEARCH OFFICES REGIONAL

P K BASU Regional Head, Research & Economics (65) 6432 1821 [email protected]

WONG Chew Hann, CA Acting Regional Head of Institutional Research (603) 2297 8686 [email protected]

ONG Seng Yeow Regional Products & Planning (65) 6432 1453 [email protected]

ECONOMICS Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 [email protected]

Luz LORENZO Philippines (63) 2 849 8836 [email protected]

Tim LEELAHAPHAN Thailand (662) 658 1420 [email protected]

JUNIMAN Chief Economist, BII Indonesia (62) 21 29228888 ext 29682 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII Indonesia (62) 21 29228888 ext 29695 [email protected]

MALAYSIA WONG Chew Hann, CA Head of Research (603) 2297 8686 [email protected] Strategy Construction & Infrastructure Desmond CH’NG, ACA (603) 2297 8680 [email protected] Banking - Regional LIAW Thong Jung (603) 2297 8688 [email protected] Oil & Gas Automotive Shipping ONG Chee Ting, CA (603) 2297 8678 [email protected] Plantations- Regional Mohshin AZIZ (603) 2297 8692 [email protected] Aviation – Regional Petrochem YIN Shao Yang, CPA (603) 2297 8916 [email protected] Gaming – Regional Media TAN CHI WEI, CFA (603) 2297 8690 [email protected] Power Telcos WONG Wei Sum, CFA (603) 2297 8679 [email protected] Property & REITs LEE Yen Ling (603) 2297 8691 [email protected] Building Materials Manufacturing Technology

LEE Cheng Hooi Head of Retail [email protected] Technicals

HONG ONG / CHINA Ivan CHEUNG, CFA (852) 2268 0634 [email protected] Industrial Jacqueline KO, CFA (852) 2268 0633 [email protected] Consumer Andy POON (852) 2268 0645 [email protected] Telecom & equipment Alex YEUNG (852) 2268 0636 [email protected] Industrial Karen KWAN (852) 2268 0640 [email protected] HK & China Property Jeremy TAN (852) 2268 0635 [email protected] Gaming Warren LAU (852) 2268 0644 [email protected] Technology – Regional Philip TSE (852) 2268 0643 [email protected] HK & China Property

INDIA Jigar SHAH Head of Research (91) 22 6623 2601 [email protected] Oil & Gas Automobile Cement Anubhav GUPTA (91) 22 6623 2605 [email protected] Metal & Mining Capital goods Property Urmil SHAH (91) 22 6623 2606 [email protected] Technology Media Varun VARMA (91) 226623 2611 [email protected] Banking

SINGAPORE Gregory YAP Head of Research (65) 6432 1450 [email protected] Technology & Manufacturing Telcos - Regional Wilson LIEW (65) 6432 1454 [email protected] Property & REITs James KOH (65) 6432 1431 [email protected] Logistics Resources Consumer Small & Mid Caps YEAK Chee Keong, CFA (65) 6432 1460 [email protected] Offshore & Marine Alison FOK (65) 6432 1447 [email protected] Services S-chips ONG Kian Lin (65) 6432 1470 [email protected] REITs / Property Wei Bin (65) 6432 1455 [email protected] S-chips Small & Mid Caps Derrick HENG (65) 6432 1446 [email protected] Transport (Land, Shipping & Aviation)

INDONESI Lucky ARIESANDI, CFA (62) 21 2557 1127 [email protected] Base metals Mining Oil & Gas Wholesale Rahmi MARINA (62) 21 2557 1128 [email protected] Banking Multifinance Pandu ANUGRAH (62) 21 2557 1137 [email protected] Automotive Heavy equipment Plantation Toll road Adi N. WICAKSONO (62) 21 2557 1128 [email protected] Generalist Anthony YUNUS (62) 21 2557 1139 [email protected] Cement Infrastructure Property

PHILI PINES Luz LORENZO Head of Research (63) 2 849 8836 [email protected] Strategy Laura DY-LIACCO (63) 2 849 8840 [email protected] Utilities Conglomerates Telcos Lovell SARREAL (63) 2 849 8841 [email protected] Consumer Media Cement Luz LORENZO / Mark RACE (63) 2 849 8844 [email protected] Conglomerates Property Ports/ Logistics Gaming Katherine TAN (63) 2 849 8843 [email protected] Banks Construction Ramon ADVIENTO (63) 2 849 8845 [email protected] Mining

THAILAND Sukit UDOMSIRIKUL Head of Research (66) 2658 6300 ext 5090 [email protected]

Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] Consumer/ Big Caps

Andrew STOTZ Strategist (66) 2658 6300 ext 5091 [email protected]

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] Strategy Padon Vannarat (66) 2658 6300 ext 1450 [email protected] Strategy Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] Auto Conmat Contractor Steel Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] Media Commerce Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] Energy Petrochem Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] Property Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] Banking & Finance Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] Transportation Small cap. Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] Electronics Pongrat RATANATAVANANANDA (66) 2658 6300 ext 1398 [email protected] Services/ Small Caps

VIETNAM Michael KOKALARI, CFA Head of Research (84) 838 38 66 47 [email protected] Strategy Nguyen Thi Ngan Tuyen (84) 844 55 58 88 x 8081 [email protected] Food and Beverage Oil and Gas Ngo Bich Van (84) 844 55 58 88 x 8084 [email protected] Banking Trinh Thi Ngoc Diep (84) 844 55 58 88 x 8242 [email protected] Technology Utilities Construction Dang Thi Kim Thoa (84) 844 55 58 88 x 8083 [email protected] Consumer Nguyen Trung Hoa +84 844 55 58 88 x 8088 [email protected] Steel Sugar Resources

mailto:[email protected]

1 July 2013 of 35


APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result. Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect. US

This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

DISCLOSURES

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Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Singapore: As of 1 July 2013, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report. Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report. Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission. As of 1 July 2013, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report. MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Ong Seng Yeow | Executive Director, Maybank Kim Eng Research

Definition of Ratings Maybank Kim Eng Research uses the following rating system:

BUY Return is expected to be above 10% in the next 12 months (excluding dividends) HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends) SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share

NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax

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Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill London EC3R 8HY, UK Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia

Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam In association with Maybank Kim Eng Securities JSC 1st Floor, 255 Tran Hung Dao St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 838 38 66 39

Saudi Arabia In association with Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading Kevin FOY [email protected] Tel: (65) 6336-5157 US Toll Free: 1-866-406-7447

North Asia Sales Trading Eddie LAU [email protected] Tel: (852) 2268 0800 US Toll Free: 1 866 598 2267

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