Update: China Cord Blood Beats Earnings Estimates For Q1

Aug.30.14 | About: China Cord (CO)

Summary

Earnings for FQ1 beat estimates, while revenue was in line.

These results confirm my positive outlook for the company.

I did anticipate the stock to outperform the market in my last article.

China Cord Blood (NYSE:CO) reported a solid quarter for FQ1. All figures have been converted to USD in this article. Revenue was in line with estimates, rising by 18% year-over-year to $24.71 million. Earnings per share of $0.06 exceeded estimates by 20%. This marked the third quarter in a row where China Cord Blood exceeded its earnings estimates. The amount of new subscribers during the quarter increased slightly y-o-y to 15,548. The Guangdong market had the largest contribution of new subscribers. The company's new facilities in Guangdong and Zhejiang have been completed. These new processing and storage facilities will resolve the processing bottleneck in Zhejiang and set-up the company for future ramp-ups in those regions.

Revenue from storage fees, which comprised 31% of total revenue, increased 20% to $7.65 million, while revenue from processing fees, which comprised 69% of total revenue, increased about 18% to $17.25 million. The total subscriber base increased to 392,171. Gross profit increased 18.5% to $20.2 million, while the gross margin fell slightly from 81% to 80.6% due to higher material cost. Although sales and marketing expenses increased 11.7% to $5.16 million, they decreased as a percentage of revenue from 22.1% to 20.7%.

These positive results confirm my bullish outlook for China Cord Blood. I did anticipate that the company would outperform the market in my last article on the company. The stock did double since then from about $2.60 to the current price of $5.25. The stock still looks attractive going forward, as it trades with a low PEG of 0.76 and an EV/EBITDA of 4.85. The company is expected to grow revenue at low double-digit rates this fiscal year and next fiscal year. Earnings are expected to decrease by 11.5% this fiscal year, followed by an increase of 39% next fiscal year, and average 30% annual gains for the next five years. This valuation and growth implies that the stock is likely to continue outperforming the S&P 500. Special thanks to good friend, Brian Knoll, for making me aware of this company and getting me to do the research on the stock.

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