Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis. The Straits Times Index (SGX: ^STI) has dipped slightly by 0.2% to 3,323 points. With just nine of its 30 constituents clocking gains today, let’s take a look outside the index for some interesting market beaters. Union Steel Holdings Ltd (SGX: V69) has jumped by 11.6% to S$0.135. Last Thursday, the supplier of recycle metals had released its full-year earnings for the fiscal year ended 30…
Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on changes – just in case they’re material to our investing thesis.
The Straits Times Index (SGX: ^STI) has dipped slightly by 0.2% to 3,323 points. With just nine of its 30 constituents clocking gains today, let’s take a look outside the index for some interesting market beaters.
Union Steel Holdings Ltd (SGX: V69) has jumped by 11.6% to S$0.135. Last Thursday, the supplier of recycle metals had released its full-year earnings for the fiscal year ended 30 June 2014 (FY2014) and saw annual revenue spike by 60.1% to S$146 million.
The company’s top-line had expanded as it experienced broad-based growth in both its trading and recycling business segments. Contributions from Union Steel’s newly-established Malaysian business also chipped in for the company’s revenue growth.
Unfortunately, Union Steel’s bottom-line had suffered as profit dropped by 28.6% to S$4.50 million. A big increase in operating expenses and a sharp decline in gross profit margin (the latter had dropped from 16.2% a year ago to 10.8%) were the main culprits.
Cord blood bank operator Cordlife Group Ltd (SGX: P8A) is next in line with its shares up 3.3% to S$1.27 following the release of its full-year earnings yesterday evening. For the 12 months ended 30 June 2014, Cordlife saw top-line growth of 41.5% to S$49.1 million while its profit had surged by 125% to S$30.4 million compared to a year ago.
Client deliveries – the number of new customers utilising its cord blood banking services – is an important number for investors to keep track of regarding Cordlife’s corporate progress. On that front, investors might be happy to know that client deliveries had more than doubled from 7,700 to 15,880. But it should also be noted that much of the growth had come through acquisitions – back in June 2013, Cordlife had entered the cord blood banking market in India, Indonesia, and the Philippines via acquisitions – with little in the way of organic growth.
That said, the company mentioned in its earnings release that its trio of new markets had experienced compounded annual growth rates of more than 30% between 2007 and 2011 in terms of incremental cord blood storage units. In addition, the company’s market in Singapore (one of Cordlife’s key geographical markets prior to the acquisitions) is also projected to grow at 9% per year from 2011 to 2015. So, all these might yet result in organic growth. In any case, the change in client deliveries is definitely worth keeping an eye on for Cordlife’s investors.
In a separate announcement released concurrently with its full-year earnings, Cordlife also revealed that it has managed to raise its interest in China Cord Blood Corporation (CCBC) to 17.79%. According to Cordlife, CCBC is “China’s largest cord blood banking operator.”
Previously, Cordlife had owned a 10.02% stake in the Chinese outfit. In yesterday’s announcement, Cordlife would be purchasing CCBC’s convertible bonds which have a principal value of US$25 million. These convertible bonds, which are due on 3 October 2017 and would entitle Cordlife to receive 7% of the principal value in annual interest payments, would see Cordlife’s stake in CCBC increase to 17.79% assuming full conversion.
According to Jeremy Yee, Chief Executive of Cordlife, “China is one of the fastest growing healthcare markets in Asia, and [Cordlife is] poised to further capitalise on its strong growth prospects” with the increase in ownership of CCBC.
But, there’s an interesting facet to this deal investors have to note. Cordlife would actually be paying US$44.045 million to purchase this US$25 million convertible bond. In addition, another company called Magnum Opus International Holdings Limited would also be buying an identical tranche of CCBC convertible bonds worth US$25 million for US$44.045 million. To help Magnum Opus pay for the deal, Cordlife would be loaning the former some US$46.5 million.
Despite the growth potential of CCBC here, investors would have to keep a close watch on Cordlife’s balance sheet. As of 30 June 2014, the company had S$32.6 million in cash, S$988,000 in short-term investments, and S$11.8 million in fixed deposits. It also had total borrowings worth S$12.9 million. Given the total capital outlays needed for the purchase of CCBC’s bonds, Cordlife would very likely have to resort to some heavy borrowing which would weaken its balance sheet.
The company has not been able to produce much cash from its business so far – in the four years ended 30 June 2014, Cordlife’s total operating cash flow had amounted to only US$26.5 million. So, a weakened balance sheet is something investors really need to keep an eye on.
To keep up to date on the latest financial and stock news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead. Also, like us on Facebook to follow our latest hot articles.
The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.