Global Cord Blood Corporation
Q4 2021 Earnings Call Transcript

Published: 29 Jun 2021

[Operator:]

Welcome everyone to Global Cord Blood Corporations Earnings Conference Call for the fiscal 2021 Fourth Quarter. All participant line be placed on mute during the presentation after which there will be a question-and-answer session. Now, I would like to introduce Ms. Cathy Bai, VP of Corporate Finance to begin the presentation.

[Cathy Bai:]

Thank you, Jess. Good morning, everyone. Welcome to our fiscal 2021 fourth quarter earnings conference call. A press release discussing our financial results has already been published and the copy is available on our company's website. During the call, our management team will summarize corporate developments and financial highlights for the quarter. A question-and-answer session will follow.

[Albert Chen:]

Good morning, everyone. In the fourth quarter, revenues increased by 0.8% year-over-year to approximately RMB302 million, mainly driven by the increase in storage fee revenues. During the reporting quarter, the group recruited over 19,000 new subscribers representing an increase of 5% year-over-year. Due to the ongoing COVID-19 impact and fewer newborns in our operating markets, we offered additional pricing incentives to encourage subscriptions. As a result, revenues generated from processing fees and other services decreased by 4% year-over-year to approximately RMB176 million which accounted for 58% of total revenues compared to 61% of last year. By the end of March 2021, our accumulated subscriber base had surpassed 900,000. Accordingly, storage fee revenues for the fourth quarter increased by 9% year-over-year to approximately RMB127 million. The gross profit in the fourth quarter remained at approximately RMB256 million as higher raw material costs and a slight increase in processing volume offset the increase in storage revenues. Gross margin decreased slightly to 85% from 86% of last year. Operating income for the fourth quarter decreased slightly by 0.7% year-over-year to RMB148 million and operating margin was 49% compared to 50% of last year. Depreciation and amortization expenses for the reporting quarter were approximately 12 million renminbi similar to the prior year period. Non-GAAP operating income decreased by less than 1% year-over-year to approximately RMB160 million. Non-GAAP operating margin was 53% in the reporting quarter.

[Operator:]

We will now begin the question-and-answer session. Our first question comes from Mr. Sandy Mehta from Evaluate Research.

[Sandy Mehta:]

Yes, congratulations on the solid results. The new China policy with regard to two children and now three children, what impact do you see that having on your business going forward? Thank you.

[Albert Chen:]

Thank you for the questions. With respect to the so called three child policy now, overall I think it should be a positive development because it signals the regulatory body is aware of the issues and also trying to make measures to counter the decline in newborn number. So, we believe the overall intention is positive. Unfortunately though is that it is fair to assume that it will have -- it will need to provide additional incentives for the -- before the general public can actually incentivize to have additional child. As many of you are aware that the living expenses in China is skyrocketing and having to take care of the elderlies at home and then raising additional children and the sole income earners being the husband and wife in the family, they basically have to support a lot of mouth .

[Operator:]

Thank you, Andy. Next, we have Cyrille Pichot of Altimeo.

[Cyrille Pichot:]

First, congratulations on the strong set of results, especially on the cash generation. So actually, I have three very little questions. The first one is can you tell us a little bit about your acquisition strategy? Maybe do you anticipate to do some acquisition maybe outside of China to reduce your geographic risk? So, is there any advanced project on the side? Also, second question is just about Qilu. You have a stake in Qilu which is a valuable company, which is valued at around U.S.-$30 million in your balance sheet. It's not distributing any dividend. Do you expect to do something with that because I mean the value on the balance sheet is just completely ridiculous, based on the financials of Qilu. And the last question is just about a new regulation that is coming regarding secondary listing in Hong Kong. At the end of March, Hong Kong authorities published a draft project to broaden the qualification for secondary listing in Hong Kong actually to make it easier to get a secondary listing. And especially, the Hong Kong exchange plans to substantially lower the capitalization qualification to let smaller companies raise funds in Hong Kong, based on the text of the regulation, you will be eligible. So, do you anticipate potentially to think about that based on the risk, which is about two or three years from now the risk of delisting in the U.S.? Thank you very much.

[Albert Chen:]

Thank you for the questions. First of all, regarding the company's strategic directions, especially concerning the potential acquisition, the company is looking into expanding our service revenue or service portfolio, and part of the expansion strategy definitely will involve acquisitions and we are not limiting ourselves to acquisition targets within the PRC. There are interesting opportunities, which we're currently exploring. So, it is fair to -- I guess it is fair to say that I think there are definitely opportunities available, but none of that had reached an announceable stage, put it this way. So, if we make any material developments on the acquisition front, we will definitely announce it to the market in a timely manner. But, as you also touched on the regulatory issues, I also want to highlight that as many of you are aware, at the end of 2020, the authorities had made a public statement regarding the cord blood banking policy in the PRC. We always talk about one license per region policy, but in the latest publication put out by the National Health Commission back in December 2020, if I'm not mistaken, they are pretty much putting the licensing regime on hold by stating that they will not accept additional new license or they would not accept any new applications regarding new licenses for year 2021. So, like we pointed out in our previous earnings call, this so called latest statement by the National Health Commission has definitely introduced some layer of uncertainties because there's -- right now there's no official statement whether or not the one license policy is still ongoing. The officials from the NHC is basically saying that they're not accepting any new application. So in the absence of further guidelines or implementation details, there is still a relatively high level of ambiguities and uncertainties with respect to cord blood banking. And also, in April 2021, the new Biosecurity Law has become effective. And it is concerning mostly regarding the human genetic resources and how it's being handled on collection, storage and so forth. It certainly has an impact on the cord blood banking industry as a whole. And but again, right now, there are still lack of implementation details. So we are still monitoring the situation, because of all the uncertainties surrounding the cord blood banking industry regulations, we believe that it is prudent to look at opportunities outside of China, because to a certain extent, not only we need to expand our service portfolio, but we also, to the extent possible, minimize our geographical risk and China's specific regulatory risk as well. So to answer your question, yes, we are looking at opportunities outside of China, as well as opportunities in China as well.

[Operator:]

Thank you. . At this point there appears be no further question. I will now turn the call back to Ms. Cathy Bai.

[Cathy Bai:]

Thank you, Jess. This concludes our earnings conference call for the fiscal 2021 fourth quarter. Thank you all for your participation and ongoing support. Have a great day. Thank you for your help Jess. You may now disconnect.

[Operator:]

Thank you, Ms. Cathy. The conference call has now ended. You may now disconnect.