NEW YORK, Oct. 31, 2017 /PRNewswire/ -- The following is an
open letter sent October 31, 2017
from Jayhawk Capital to Sanpower Group regarding China Cord Blood
Corp (NYSE: CO).
As significant minority shareholders of China Cord Blood Corp
(NYSE: CO), we want to congratulate Sanpower Group on the
successful (pending) completion of your transaction with Golden
Meditech Holdings Ltd. Your opportunity as majority shareholders to
recognize and develop the intrinsic value inherent in China Cord makes us optimistic for all
shareholders. As a result of our ongoing analysis, Jayhawk
recommends you authorize the Board to tender for 20 million shares
of China Cord at $15 per share. We understand from the Board
that they were unable to authorize share repurchases while the
Golden Meditech transaction was pending. Buying shares will
increase Sanpower's ownership, restore confidence to minority
shareholders by clearly aligning economic interests, and begin to
partially reverse the over-capitalization of China Cord. Any shares purchased would be at a
significant discount to the intrinsic value of the stock.
Our open letter of July 26, 2017
went through four alternative valuation methods averaging
$59 per share. This valuation
was before the outstanding results announced in August (subscriber growth was 36% and a remarkable
$33 million ($132 million annualized!) of cash flow was
generated from operations).
Below are Jayhawk's pro-forma earnings estimates that treat the
increase in deferred revenue as an addition to the revenue
line. This better reflects the economics of the cord blood
business. The pro-forma earnings also include the economics
of China Cord's 24% ownership in
Shandong Province Qilu Stem Cells Engineering Co., Ltd.
("Shandong"), resulting in an
estimated $22 million of additional
profits. This information was attained from the public
filings made by Nanjing Xinjiekou Department Store, a US$7 billion A-share listed company controlled by
Sanpower, which bought the other 76% of Shandong on February 4,
2017 for US$1 billion.
Prior to this acquisition, there was no public information of the
earnings of Shandong.
Pro-Forma (USD
000's)
|
CY
2017
|
CY
2018
|
CY
2019
|
CY
2020
|
Revenue
|
212,482
|
282,334
|
368,828
|
483,430
|
Gross Margin
|
186,461
|
254,418
|
339,516
|
452,652
|
Net Income
|
136,654
|
227,660
|
314,586
|
433,191
|
EPS
|
1.13
|
1.89
|
2.61
|
3.59
|
Price Targets: 25x
CY 2018 = $54 25x CY 2019 =
$74
|
|
|
|
|
|
Assume successful
tender offer completed January 1, 2018
|
EPS
|
1.13
|
2.26
|
3.13
|
4.31
|
Price Targets: 25x
CY 2018 = $62 25x CY 2019 =
$86
|
Jayhawk recommends China Cord
tender for 20 million shares at $15
per share. Spending $300
million on the tender offer would still leave China Cord with an estimated $525 million of cash on December 31, 2018, allowing for incremental share
repurchases and a healthy dividend. Jayhawk looks forward to being
a value added shareholder as Sanpower integrates the acquisitions
of China Cord, Dendreon (acquired
from Valeant), Natali (the Israeli nursing company), and the 76% of
Shandong province. Thank you
for your consideration and attention to this matter.
Yours faithfully,
Jayhawk Capital
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SOURCE Jayhawk Capital