U.S. Markets closed

Edited Transcript of CO earnings conference call or presentation 28-Nov-18 1:00pm GMT

Q2 2019 Global Cord Blood Corp Earnings Call

Central Jan 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Global Cord Blood Corp earnings conference call or presentation Wednesday, November 28, 2018 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Albert Chen

Global Cord Blood Corporation - CFO & Director

* Cathy Bai

Global Cord Blood Corporation - VP of Corporate Finance

================================================================================

Conference Call Participants

================================================================================

* Chung-Ping Yuen

* Kent Charles McCarthy

Jayhawk Capital Management, LLC - Founder, CEO, and President

* Michael D. Schmitz

Jayhawk Capital Management, LLC - CFO and Chief Compliance Officer

* Patrick Terrell

* Robert Calabretta

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome everyone to Global Cord Blood Corporation's Earnings Conference Call for the Second Quarter of Fiscal 2019. (Operator Instructions) Now I would like to introduce Ms. Cathy Bai, VP of Corporate Finance, to begin the presentation.

--------------------------------------------------------------------------------

Cathy Bai, Global Cord Blood Corporation - VP of Corporate Finance [2]

--------------------------------------------------------------------------------

Thank you, Anna. Good morning, everyone. Welcome to our fiscal 2019 second quarter earnings conference call. A press release discussing our financial results has already been published and a 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.

Before we begin, please note that today's discussion will contain forward-looking statements that are subject to certain risks and uncertainties and actual results could be materially different from these forward-looking statements. Kindly refer to our SEC filings for the detailed discussions of potential risks.

In the interest of time, we will begin with our CEO's remarks, followed by a detailed report, our fiscal 2019 second quarter financials given by our CFO, Mr. Albert Chen. Our management will be available to answer questions during the QA session.

Today, on behalf of our CEO, Tina, I will read her prepared remarks. Let's begin the presentation.

Good morning, ladies and gentlemen, investors and analysts. Welcome to our fiscal 2019 second quarter earnings conference call.

In the reporting quarter, the volatile capital market in China and the escalating U.S. and China trade tensions continue to rattle consumer confidence and sentiment in our markets, which therefore demanded more effort to bring in clients. Despite this, the group successfully recruited 22,908 new clients, representing a year-over-year decrease of 3.1% and a quarter-over-quarter increase of 11.2%. Guangdong and Zhejiang were once again our leading contributors of growth.

By the end of the operating -- reporting quarter, our accumulated subscriber base has surpassed 700,000, meeting our expectations and further strengthening our leading status in the cord blood banking industry around the globe.

During the second fiscal quarter, we not only continued our efforts to carefully expand our hospital channels and to selectively intensify our sales activities, but also undertook additional client conversion approaches, such as upgrading our service offerings and educating our markets.

For example, we increased the sum insured in Beijing, Guangdong and Zhejiang, and this was positively received. This success also suggests that there is still untapped demand for preventative health care services within our market and that these consumers can be converted given relevant education and promotions. Meanwhile, we also gained client conversion from our continued support of blood stem cell related clinical research projects, such as those using stem cells to treat cerebral palsy in China.

Although we are pleased that our new subscriber numbers for the quarter match our expectations, we have to stay alert as uncertainties in the general macro business environment increase. The economy in China continues to show signs of a slowdown and financing costs trend upward. Taking these factors into consideration and with the introduction of more favorable economic policies in China, we remain cautiously optimistic on the outlook for the second half of the fiscal year and maintain our new subscriber target for fiscal 2019 at between 85,000 to 90,000.

To reach our new subscriber target and to maintain our position as a global leader in the industry, we will remain focused on nurturing and penetrating existing domestic markets. At the same time, we continue to explore development opportunities that may provide cost or profit synergies. Such opportunities could take the form of geographical expansion or offering additional services to existing clientele.

This concludes my remarks regarding our fiscal 2019 second quarter results. Thank you for your ongoing support of GCBC.

I will now turn the call over to our CFO, Mr. Albert Chen, to review our second fiscal quarter financial performance in greater detail.

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [3]

--------------------------------------------------------------------------------

Good morning, everyone. Thank you for joining our call today.

In the second quarter, revenues increased by 5% year-over-year to CNY 247 million, and such increase was mainly led by the contribution from storage revenue.

As mentioned in the CEO remarks, by the end of September 2018, our accumulated subscriber base has expanded to over 704,000. Accordingly, storage revenue for this quarter increased by approximately 19% year-over-year to CNY 95 million. Storage revenue accounted for 39% of the total revenues, up from 34% of last year.

In the second quarter, we successfully recruited 22,908 new subscribers, which represented an 11% increase quarter-over-quarter, despite conservative consumer spending. As a result, second quarter processing revenue amounted to nearly CNY 152 million. Our Guangdong division remained the key driver and the Zhejiang division continued to ramp up steadily.

Gross profit in this quarter increased by 6% year-over-year to nearly CNY 200 million, as economy of scale offset rising raw material costs. Gross margin improved to 81%, which was led by higher contribution from storage revenue.

As a result of the absence of share-based compensation expense and moderate margin improvement, operating income increased by 37% year-over-year to CNY 105 million. Even without the impact of share-based compensation expense, operating income still grew by 10% quarter-over-quarter. As a reminder, no share-based compensation expense was recorded in the first quarter of this fiscal year either.

Operating margin increased to 42%. Operating income before depreciation and amortization and share-based compensation expense, which we refer to as non-GAAP operating income, increased by 9% year-over-year to CNY 118 million. Non-GAAP operating margin increased to 48%.

Depreciation and amortization expenses in this quarter remained at CNY 13 million. Share-based compensation expense for the same quarter of last year was CNY 20 million, whereas no such expense has been recorded since April 1, 2018.

Sales and marketing expenses in the second quarter decreased by more than 8% year-over-year to less than CNY 52 million. The drop was mainly because no share-based compensation expense has been recognized since April 1, 2018. Meanwhile, we took a more prudent approach when deploying sales and marketing resources under current market conditions. As a result, sales and marketing expenses as a percentage of revenues decreased to 21%.

General and administrative expenses for this quarter decreased by 24% year-over-year to CNY 40 million, largely due to our cost tightening measures and the absence of share-based compensation expense. General and administrative expenses as a percentage of revenues was down to 16%.

In the second quarter, we recognized CNY 31 million in unrealized holding loss for equity securities as other expenses under the new accounting standard. Such mark-to-market loss was mainly attributable to our investment in Cordlife Group Limited. In the second quarter of last year, we recorded similar loss of CNY 19 million, but it was recorded as other comprehensive loss below the net profit attributable line.

As the increase in operating income was hit by the mark-to-market loss, net income attributable to the company's shareholders for the second quarter was CNY 65 million. Net margin for the reporting quarter was 26%. Total number of shares issued and outstanding as of September 30, 2018, was 121.55 million.

Basic and diluted earnings per ordinary share for the second quarter were CNY 0.54 and CNY 0.53, respectively. Please note that the diluted EPS was caused by the scrip dividend and the company has no dilutive derivatives or instruments outstanding.

This wraps up my earnings highlight, and we are now happy take any questions concerning our latest financial results.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Robert from Waypoint Capital.

--------------------------------------------------------------------------------

Robert Calabretta, [2]

--------------------------------------------------------------------------------

Just really this is more of a series of comments. Right now, the market cap of the company is $775 million, there is cash worth $700 million approximately, Shandong is worth at least $400 million, which gives you $1.15 billion of assets. That, when you subtract the market cap gives you a negative $335 million valuation for something that generates $130 million in cash per year and grows earnings and net income every year substantially. This -- the only reason the market can ascribe this sort of valuation is because management is either incompetent or you've been intentionally suppressing the value of the company. Strange convertible deals in the past, trying to privatize the company at a low price, no attempt at analyst coverage, never mentioning the value of the Shandong stake, and putting in a one-time tiny dividend then taking it away. To sum it up, this is just hurting investors, also hurting employees, I mean employee compensation is based on this. This has to demotivate employees. Has -- using the stock as currency for a takeover, it has to hurt that. It makes management look incompetent, which really affects business. I would like to know, I mean, something has to be done to change this. You can say that you want to be conservative because of business conditions. This isn't really conservative. It's really the opposite of that. So can you please tell us what you plan to do about this?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [3]

--------------------------------------------------------------------------------

Well, thank you for your question, Robert. To -- I think to -- as my reaction to your comment is that we understand that the capital market as well as the share price of a particular company can go up and down. Sometime, it is driven by the fundamental of the business. Sometime, it's driven by psychologic factor or the liquidity of the company, various factors. But I think certain factors within our control, we would try our best to improve the profitability as well as the return to our shareholders as a whole, and also not losing sight on the long-term strategic goals of the companies. We are aware of that. We acknowledge your comments, and we will try our very best to try to resolve that.

--------------------------------------------------------------------------------

Robert Calabretta, [4]

--------------------------------------------------------------------------------

Well, if I can follow-up on that. I define long-term as 5 to 10 years. The stock has gone nowhere for 10 years and it's trading at 30% to 40% below asset value, when it generates $130 million a year. That is a time for management to change, and it's time to protect investors. 10 years is long term. It's already been long term. So have you guys talked to a banker about exploring alternatives to get bought out? For example, GI Partners in California recently bought Cord Blood Registry. They are trying to consolidate the space. I think this stock is worth at least $20 to $25. You guys should be exploring alternatives like getting bought out by somebody who knows what they're doing.

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [5]

--------------------------------------------------------------------------------

We constantly look at the alternatives to improve the operations of the company and also to improve, enhance the value of the company, so that it will benefit not only to the company as a whole, but also to our shareholders. If we are to engage in a particular transaction, we will have to announce it in a timely manner.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Your next question comes from Mike from Jayhawk Capital.

--------------------------------------------------------------------------------

Michael D. Schmitz, Jayhawk Capital Management, LLC - CFO and Chief Compliance Officer [7]

--------------------------------------------------------------------------------

Albert and Cathy, a couple of quick kind of technical questions and then a follow-up. Could you provide the subscriber breakdown by province?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [8]

--------------------------------------------------------------------------------

Thank you, Mike. For the second quarter of fiscal 2019, new subscriber breakdown, approximately 64% of new subscriber came from the -- from our Guangdong market, and 18% from Beijing and another 18% from Zhejiang.

--------------------------------------------------------------------------------

Michael D. Schmitz, Jayhawk Capital Management, LLC - CFO and Chief Compliance Officer [9]

--------------------------------------------------------------------------------

Okay. And could you also provide the breakdown of the payment option mix?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [10]

--------------------------------------------------------------------------------

Approximately 55% of new subscriber elected the normal payment options. Approximately 40% elected the bullet payment options, and the others are -- the remaining 5% are basically others payment options on things that we do during promotions. One thing I do want to highlight that is the bullet payment option right now is at 40%, and we are -- we will continue to monitor the situations. And as you -- because as you recall, the bullet payment options normally account for about 40% to 45%. Now we are kind at the low end of it.

--------------------------------------------------------------------------------

Michael D. Schmitz, Jayhawk Capital Management, LLC - CFO and Chief Compliance Officer [11]

--------------------------------------------------------------------------------

Okay. And was there any reason for that? Or do you think that's kind of tied to people not being as comfortable with the market conditions or just general market sentiment? Or...

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [12]

--------------------------------------------------------------------------------

As highlighted in our CEO remarks, we have experienced certain level of softness among our target segment. So I think the emphasis, as you can see from our results, and one thing that we're also continuously doing is on cost control and cost tightening. We are working very hard try to improve the cost efficiency. But at the same time, we are -- we have to adjust our sales and marketing strategies in order to match with the somewhat softer consumer demand, while we're trying to continue to hit our various internal operational benchmarks. So things have been progressing on track, but I think it is something that we have to monitor very, very closely. At this juncture, I mean, we are -- it's fair to say that we are still comfortable meeting our annual new subscriber targets. But as you can see, if things change or worsen all of a sudden, we have to be prepared as well.

--------------------------------------------------------------------------------

Michael D. Schmitz, Jayhawk Capital Management, LLC - CFO and Chief Compliance Officer [13]

--------------------------------------------------------------------------------

All right. And I know I'll try to just ask kind of one more question, and I have a feeling other people will continue to follow-on, on the previous caller's comments about how you guys are going to improve value for shareholders. But the other thing I just wanted to kind of probably more of a comment really is just about the business itself that you mentioned, the storage revenue continues to grow, basically will continue to grow, as you have -- as long as the new subscribers are more than the average for the previous 18 years given the way the model works. And as you mentioned, margins will continue to get better as more and more of the revenue comes from storage fees. So the business just looks like it's on pace to continue to get better even if the subscriber numbers -- even if they were to stay flat for the next 18 years, the margins and profitability will continue to get better and better. So I guess, I will kind of just ask the follow-up again, if there's any more further clarification on the dividend policy since the last call? If there's any more specifics that you can add to that?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [14]

--------------------------------------------------------------------------------

Thank you, Mike. Let me try to answer your question this way. In the absence of unforeseeable event, the team has been supportive of a stable and predictable dividend policy. And we believe it is the right thing to do for the company and shareholders. But as we think about our company current status and where we want the company to be 5 years from now, we need to carefully evaluate various factors, including like the PRC industry dynamics, the PRC cord blood banking policy environment, our current financial positions, and the current opportunities available as well as opportunities that are potentially available. We believe it is in the best interests of the company and all the shareholders to take a more balanced approach when it comes to capital allocations, to weight between the company's long-term strategic goals, while at the same time, rewarding all shareholders. But again, if we have decided to make a material change regarding our capital deployment strategies or dividend policy, we will have to announce such information in a timely manner.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question is from Adam from Morgan Stanley.

--------------------------------------------------------------------------------

Unidentified Analyst, [16]

--------------------------------------------------------------------------------

I just wondered if you could speak a little bit more freely about the term you used -- geographic growth, so maybe you could touch on growth initiatives that you have other than what we kind of already know about.

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [17]

--------------------------------------------------------------------------------

When we are talking about geographical expansions, the team has a vision of expanding its business beyond the border. And partly because we acknowledge the characteristics that we are -- that of CO, that we are -- that we have a high concentration in China, making the company subject to specific country risk and specific country-related policy risk. So it is always our -- we always look for angle and opportunities to expand beyond our existing home turf for the purpose of diversifying our service portfolio and geographical scope. To give you a better sense will be, I think, we are -- we will look into opportunities outside of China that is in the similar line of business or something that we can add to our existing service portfolio. I hope that it will help -- I hope it will give you a flavor about the other things that we are interested in.

--------------------------------------------------------------------------------

Unidentified Analyst, [18]

--------------------------------------------------------------------------------

Would those areas be in the same geographic Far East region, if you would?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [19]

--------------------------------------------------------------------------------

I don't believe that we should confine ourself to one particular regions only.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Your next question is from Kent from Jayhawk China Fund.

--------------------------------------------------------------------------------

Kent Charles McCarthy, Jayhawk Capital Management, LLC - Founder, CEO, and President [21]

--------------------------------------------------------------------------------

Arguably, this is one of your top 2 or 3 quarters given the economic environment, and in particular, congratulations on the expense controls. As usual, I just want to reiterate that I'm hopeful at some point you will consider a share repurchase, but I also recognize it's incredibly difficult right now with the core expenses with the currency controls. Plus, I'll acknowledge that not doing it in the last few years has been smart because the stock has continued to decrease. But my question is on Shandong, it's been, I think, 3 years since they paid a dividend to us. And I believe, we're probably entitled $50 million to $100 million or we have that type of ownership. Can you make any comments on your relationship with Shandong? Or are you concerned that we haven't received the dividend from them?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [22]

--------------------------------------------------------------------------------

Well, as you are aware, Shandong Cord Blood Bank, which we own 24%, the remaining 76% is owned by a PRC listed public company and controlled by Sanpower. I wouldn't say, I have a particular concern regarding Shandong Cord Blood Bank, I understand that they have their own development strategies and they have their own capital requirements. But from our perspective, obviously, if they can pay our dividend, I think it will be something that will beneficial to CO and also to our shareholders as well.

--------------------------------------------------------------------------------

Kent Charles McCarthy, Jayhawk Capital Management, LLC - Founder, CEO, and President [23]

--------------------------------------------------------------------------------

And given there that the Nanjing's ownership and their financial difficulties, would it ever be a possibility for us to buy their 76%?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [24]

--------------------------------------------------------------------------------

I guess, it will depend on the capital need for the PRC-based listed company. Because as far as I'm aware, I think the Nanjing Xinjiekou Department Store, which is the owner of that 76% equity interest in Shandong Cord Blood Bank, that particular public company is -- even though it's controlled by Sanpower, but I -- Sanpower does -- is not -- doesn't own the public company like 100%. So it is hard to say how Sanpower will be able to extract the indirect economic interest from Shandong Cord Blood Bank through their intermediate holding company, which is a public company. But with that being said, I mean, if the opportunity arise in China, whether or not it's Shandong Cord Blood Bank, we will definitely consider, but it has to be the right economics or valuation.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

Our next question is from Chris from Fairmont Capital.

--------------------------------------------------------------------------------

Unidentified Analyst, [26]

--------------------------------------------------------------------------------

Albert, I had one comment and one question. The comment being, when we spoke a few weeks ago, and you've again today sort of reiterated your view that stocks go up, stocks go down. So let me dig into that a little bit. Stocks go up and stocks go down just like any commodity when there is more buyers or more sellers. And if you look -- I've been involved in your company about 6 years now as an owner. If you look at your share price, it went up very significantly about 18 months ago over the last few years. And if you had to dig into that, there are significant number of buyers. But many of them were quant funds, Renaissance being the largest, you can still see them pretty high up in the share register. And if you look down, if you kind of dig into who those buyers are, there are other similar quant buyers. So these are people that use computers to look at your numbers. Obviously, your company is very cheap. But they also use computer trading activities to -- I'm not going to say -- I'll say manufacture, I don't mean to -- you could say manipulate, although, I don't want to intimate any sort of wrongdoing. I don't think what they do is illegal, but they can use their trading activities to increase the price of a stock artificially. And if you or anyone else on the phone has tried to trade shares when they were up around $15 -- that $15 price [(inaudible), there was really no volume there. So that was one activity that happened in the stock. But taking that out, if you really look at the share registry, there has been no significant change over that entire period. So that speaks to really a lack of Investor Relations activity, a lack of finding new buyers for the stock. So in light of that, I'd just like you to update us, I know we spoke about it on the last quarterly call. Could you update us on your Investor Relations activities, both in regards of directly finding new investors as well as getting coverage or interfacing with the sell side community?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [27]

--------------------------------------------------------------------------------

Thank you for your question, Chris. Well, actually, since we last spoke, I have luckily been approached by more than one publishing analyst, so I think that's a good sign. And to many of you who are currently on the phone, some of you who are currently working with me, introducing some shareholders to CO, we also appreciate your support. I just want to say that we are very -- we are -- I can't think of a better way to say it, but honestly, to bring in investor interest, all the help are welcome. Some of the existing shareholders that is currently on the register, I think they are actually helping me to plan the next roadshow as well. So I think that is very interesting. But I think we'll continue to work on this. And I think, we just have to get more investor interest into the company. It's a clearly, it's not a battle.

--------------------------------------------------------------------------------

Unidentified Analyst, [28]

--------------------------------------------------------------------------------

Well, that's very good to hear. I applaud your efforts. Could you tell me -- if you can tell me who are the sell side firms you're speaking with? And if you can't, can you tell me whether they are sort of bank affiliated or independent research groups?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [29]

--------------------------------------------------------------------------------

They are from brokerage dealer house. It's a U.S.-based firm. But if you're able to -- it's still a relationship I need to cultivate. It doesn't mean they will definitely write something about our company. But at the same time though, I mean, if you have interesting or if you have investor -- analysts who is interested in covering this particular space, please send them our way.

--------------------------------------------------------------------------------

Unidentified Analyst, [30]

--------------------------------------------------------------------------------

Okay. Well, if we can help, again, I'd reiterate that we're happy to [still] reach out.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Your next question is from Chung Yuen from CRCM.

--------------------------------------------------------------------------------

Chung-Ping Yuen, [32]

--------------------------------------------------------------------------------

Albert and Cathy and the team, first of all, congratulations on a terrific quarter in this environment and cost reduction. We think the management did a good price run -- a good job running the business in this environment. Three quick questions. One, what exchange rate you are using for the June 30 -- or actually, September balance sheet? Is the average renminbi or spot renminbi? Can you give us that? I have 2 more follow-ups, but that's a quick question.

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [33]

--------------------------------------------------------------------------------

The convenient translation that we produce in the earning press release is based on the September 30th RMB-U. S. dollars rate. So that is the convenience translation, that result in the U.S. dollars column you see in the income statement -- sorry, comprehensive statement of operations as well as the balance sheet.

--------------------------------------------------------------------------------

Chung-Ping Yuen, [34]

--------------------------------------------------------------------------------

Got it. Secondly, as you think about the regulatory changes in 2020 and there will be more provinces opening up potential licenses, how do you think about deploying capital within China versus outside of China where you can acquire technology to expand potential margin of the domestic business versus acquiring new license in another province?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [35]

--------------------------------------------------------------------------------

I think this is actually a very good questions and one of those questions that is also challenging to answer as well. As we stated in our public disclosure, the current one license per region policy is meant to expire in 2020. And it gives a possible speculation of various different outcomes. For example, it may allow the authorities to open up more locations for people to apply. But as to what kind of application process is required, that remain to be determined. That's one possibility meaning there are more location for people to apply for the license. Another possibility is that there is no new location being granted, but they lower the barrier of entry, for example, allowing one -- multiple license per region. That's also possible. But again, I mean, your speculation is as good as mine because the authority is keeping their lips tight at this stage. Or there is also a possibility, which we have seen repeatedly at the end 2010 and also at the end 2015 is that the policy get extended status quo, but no new locations is available. Based on our readings, it is fair to say that we suspect that it is not likely, I mean, at least based on the facts and circumstances that is available to us now, we believe it is not likely that the PRC authorities will deregulate the entire industry and basically letting go of licenses, meaning that anyone can come in and compete. Doesn't look like the typical PRC authorities way of doing things. Now with that being said, there is always a possibility that in the remote future that, that the one license per region policy will change, whether this is going to happen at the end 2020 or whether it's going to happen later down the road, we don't know. We don't have the crystal ball. But as part of our capital deployment decisions, we have to stand ready for this possibility as well, which is why in my earlier remarks when we talk about capital allocation decisions, we have to think about if the opportunities arises within the PRC and outside of PRC, what should we do? That also is part of our evaluation process as well. But I guess, it's fair to say that this policy has been extended twice already. We are still here.

--------------------------------------------------------------------------------

Chung-Ping Yuen, [36]

--------------------------------------------------------------------------------

Got it. Albert, I think as a shareholder at least, we invest to look at the whole China and to the extent there are opportunities within China and there's good capital deployment in other provinces, we love to see the management team think through these issues and prepare it because it takes so long to apply to those licenses. But thank you for the comments. My last one, I'll stick to the guideline, which is part of the reason we have so much cash is, we didn't have a great banking relationship with banks and couldn't get loans, so we have to keep cash on the books. When the management thinks about potential buybacks, dividends, how is our banking relation with both domestic and U.S. dollar-based banks? And do we have credit lines? In that case, we don't have to pile all those cash on the books that we can pay dividend, buybacks, if we have credit lines given the fact we're a listed foreign -- listed company, we have steady free cash flow. Any thoughts on that? We're [lucky] from then 6 years ago where we had no cash or no cash flow.

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [37]

--------------------------------------------------------------------------------

Well, I mean, part of the reason that we have changed our strategies since 2012 is because we think that the -- as you know, the financial market or the financial institution in the PRC are still more -- I'd say more favorable towards state-owned enterprise as compared to private enterprise. We are glad to see that things have eventually starting to turn, starting to change favorably. I think the banking relationship is something that we can work on right now. I think I'll probably answer your question up to that stage. Yes, it's something that we can -- I think it's worth looking into now as compared to like 5 years ago.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

Our final question comes from [Pat Terry] of [Shirley Group.]

--------------------------------------------------------------------------------

Patrick Terrell, [39]

--------------------------------------------------------------------------------

Albert, it's actually Pat Terrell of Terrell Group Management. And it seems like the resounding theme here is, how do we get the stock price up, not really just for the shareholders today, but it would give you another currency to use as you look at deploying your strategy wherever and whenever that happens to expand. And I think at this stage, it's safe to say that you have $600 million or 600 -- or $700 million, almost -- $671 million available to invest. It's a lot of money. It would be equally nice if your stock was being traded at a reasonable multiple of earnings. And today, it probably would shift up at least 2x, maybe even 3x in valuation. But I think, you're always in this spot where you're trying to protect your cash even though you're generating another $30 million of cash a quarter. So it really seems to me that if the management and the board were really looking at this, they would say, "Hey, why don't we try to have a consistent quarterly dividend program which will show people that we're rewarding the shareholders that are currently there." Hopefully, that would have the effect that would bring your stock price up. I think it would. And since we haven't really tried it, it's got to be a consistent one, meaning a quarterly one, not a maybe every year, you might give one. This would bring your ability to use your stock as currency also. Because it sounds like you have plans to deploy capital in some fashion, even though that's been discussed now for probably at least 4 quarters, and of course, we've seen nothing that you've deployed capital in. But we like the idea if you could deploy capital that would increase our earnings and add to our already robust cash flow. So I guess the question is, there is a huge hesitancy on this dividend. It appears that you can always take the dividend policy off the table if, for some reason, you have catastrophic changes in your business or something like that. But I don't understand where it -- how it could possibly hurt you, and how only it could help you going forward by helping you get your other currency up, which is your stock, because at some point, companies usually use stock and cash to buy assets or -- in other regions. Can you make a comment about that, please, Albert?

--------------------------------------------------------------------------------

Albert Chen, Global Cord Blood Corporation - CFO & Director [40]

--------------------------------------------------------------------------------

Well, Pat, thank you for your questions. Like you said, I think capital deployment decision is an important one. And if we're going to, for example, do a dividend, it is certainly we want this dividend to be repeatedly happening and also sustainable. So like you pointed out, I mean, we have to find the best way to deploy our capital, dividend being one of it. And also, but as I highlighted in my remarks early on is, we have to think about where we are and where we want to be 5 years from now, and take a more balanced approach, make sure that the company will continue to strive over the course of the next couple -- over the long run, and at the same time, able to reward our shareholders who have been with us for so long. So I hear you loud and clear, and this is something that is definitely on a up high on our priority list. But once we have a definitive decisions or if there is going to be a material change with respect to the capital deployment policy, we will have to announce it through a press release so that the entire market knows. But what you say is right, and we are working on it.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

This concludes the Q&A session of the call. I'd like to turn the call back over to management for any closing remarks.

--------------------------------------------------------------------------------

Cathy Bai, Global Cord Blood Corporation - VP of Corporate Finance [42]

--------------------------------------------------------------------------------

Thank you, Anna. This concludes our earnings conference call for fiscal 2019 second quarter. Thank you all for your participation and ongoing support. Have a great day.

--------------------------------------------------------------------------------

Operator [43]

--------------------------------------------------------------------------------

Ladies and gentlemen, that does conclude our conference for today. You may all now disconnect.