TMC Life and StemLife’s Merger on the Horizon?

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Jan 21 2008
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The main difference between the two Malaysian public listed companies involved in the business of stem-cell banking services is their stock prices, which in turn is closely related to their shareholders. One’s stock price has been bid-up while the other has been neglected. Basically there’re two other players in this sector namely CyroCord and CellSafe International (CSI) but let’s concentrate on both StemLife Berhad (KLSE: STEMLFE, stock-code 0137) and TMC Life Sciences Bhd (KLSE: TMCLIFE, stock-code 0101) as the latest changes in shareholding makes the story interesting.

Short note on TMC Life and StemLife’s business

While both TMC Life and StemLife provide stem-cell storage service, both companies actually started from different angle of healthcare business. StemLife specializes in the provision of stem cell banking and stem cell therapies which includes collection, testing, processing and cryo-preservation of umbilical cord blood stem cell (UCBSC). That’s their bread and butter and based annual report ended 31st Dec 2006, StemLife stored over 5,000 units of stem cells taken from umbilical cord blood of newborn babies.

TMC Life stock chartStemLife stock chartOf course along their business journey, StemLife attracted quite a number of business challenges such as the former Health Minister, Chua Soi Lek, (yes, the same minister who resigned after his sex DVDs scandal) who was quite offensive at the idea of stem-cell storage and at one time claimed Malaysian people are really crazy over cord blood storage. Recently, StemLife also attracted attention when it initiated legal action against a blogger (former employee) who claimed that the company adopted bad business practices such as storing infected cord blood with clean samples. FinanceTwitter estimated StemLife could potentially lose RM37 million in revenue due to that article.

TMC Life on the other hand relies on their human expertise (or rather human capital) in fertility services – their key person being Dr Colin Lee Soon Soo and the second man Dr Wong Pak Seng. The business of providing stem-cell storage was not realized until late 2007 through TMC BioTech Sdn Bhd, to take advantage of the demand from its existing customer-base. All the businesses within TMC Life are expected to be centralized at their new building, Tropicana Medical Center (don’t confused that the actual physical medical center is located at the prestigious Tropicana though). The business of storing stem-cell is attractively profitable – StemLife was making 50 percent profit margin, mind you. Hence the establishment of stem-cell service is giving StemLife a run for their money.

Stem-cell business attracted Big Bosses

I’m not going into details of their businesses, fundamental and technical analysis and so on as I believe I’ve done so in my previous articles (attached at the end of this article should you be interested). The main purpose of this article is to predict what could happen with the latest shareholders changes in TMC Life. Everybody knows Vincent Tan, the owner of Berjaya Group, owns substantial stake in StemLife, and the very reason why the StemLife’s stock price skyrocketed. Of course people was speculating when Tan Sri Quek Leng Chan, the owner of Hong Leong Bank Berhad (KLSE: HLBANK, stock-code 5819), acquired substantial stake in TMC Life back then. I mean what the heck is a banker doing in a fertility center?

But now, Berjaya Corporation Berhad’s (KLSE: BJCORP, stock-code 3395) boss, Vincent Tan, bought a 10.26% stake comprising 19 million shares of 10 sen each in the fertility company? That’s something you should take note very seriously. It was reported that BJCORP entered into TMC Life via its subsidiary Juara Sejati Sdn Bhd at an average price of RM1.29 a share. TMC Life’s managing director Dr Colin Lee was the seller of the 9.1 million block-of-shares to Vincent Tan although the Executive Director of TMC Life, Dr Wong Pak Seng, is accumulating.

What’s up with this Vincent Tan?

Just what’s in the mind of Vincent Tan with his 10.26 percent and 13.6 percent stake in TMC Life and StemLife respectively? It would be nice if Vincent Tan could initiate a merger exercise for both entities. Probably the synergy could be better put to use by having two main entities post-merger with Dr Colin Lee heading the unit in providing fertility service while Sharon heading the unit in stem-cell storage. One is a medical practitioner while the other is a marketing person. Furthermore Dr Colin’s expertise is in fertility and to have him running the stem-cell banking business would be tiring, not to mention a waste, (of course he could hire others), the same thing for Sharon who knows nuts about fertility. Additionally, competition in the stem-cell banking is getting stiffer with more players expected to be landing on Malaysian soil.

TMC Life StemLife MergerAnother possibility could be that Vincent Tan is not interested in merging both in the first place. But “he knew” some foreign hand(s) is interested in scooping the players to make it the spring-board for regional expansion. Healthcare business especially in stem-cell banking is relatively new in Asia with great potential if you think of China’s market. Heck, Vincent Tan could be thinking of partnering with this new foreign investor(s) who have the expertise to leverage on the BioNexus status to venture into R&D. If you care to look at the billions of dollars in recurring revenue earned by healthcare or biotech companies in US, you would be amazed of the prospect. But again the main problem is Malaysia continuously having this brain-drain problem.

Of course the above is purely speculative but with the TMC Life’s stock price movement begun skyrocketing (resistance at RM1.70), the possibility of a plan could
be in the cooking pot – be it a merger or just the Vincent’s traditional stock-frying tactic. Hey! After all speculation is good for the stock market as it creates volatility and interest. Furthermore traders love speculation as it could give them opportunity to enter at lower price should the speculation becomes reality. Both TMC Life and StemLife are fundamental stocks that investors should have in their portfolio. As such the risk is pretty limited, although StemLife has seen its stock price bid up quite substantially.

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