INITIAL PUBLIC OFFER October 17, 2006 StemLife Berhad

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1 ``````````````````````````` For Internal Circulation Only KDN PP 8927/6/2007 West Wing, Level 13, Berjaya Times Square, No 1, Jalan Imbi, Kuala Lumpur Tel: (03) Fax: (03) INITIAL PUBLIC OFFER October 17, 2006 StemLife Berhad FAIR VALUE: RM0.60 Analyst: Christie Se Tho Summary Slated for listing on the Mesdaq market, StemLife Bhd is Malaysia s 1 st private stem cell bank. It provides stem cell banking services, therapy and consultation services. As the pioneer in the Malaysian market, StemLife is also the market leader, dominating 63% of the UCBSC banking industry. Competitive factors include cost competitiveness as Stemlife offers one of the most affordable prices in the region and barriers to entry from high initial capital. The underlying risks include competition from its sole competitor, CyroCord Sdn Bhd, its ability to create awareness and educate the masses on the advantages of stem cell banking and the success rates and discoveries of new stem cell applications. Stem cell banking in Malaysia is still in its infancy stage. Over the next 5 years, the Malaysian stem cell banking market is expected to expand at a CAGR of 33.8% to RM46.5 million. Debt-free and sitting on a cash pile of RM8.8 million, StemLife is projected to grow at a 3-year revenue and pre-tax profit CAGR of 55% and 74% respectively. Based on an undemanding PEG ratio of 0.3X and a PER of 16X its FY06 EPS of 3.7sen, our target price for StemLife is RM0.60. BUY. FINANCIAL SUMMARY & FORECAST FY 31 Dec / RM' P 2004P 2005P 2006F 2007F Revenue 1,218 3,288 7,577 13,878 18,226 Gross Profit 272 1,758 3,875 5,941 7,922 EBITDA (502) 1,342 2,754 4,857 6,379 Profit before tax (591) 1,213 2,049 3,870 6,206 Net Profit (591) 1,213 2,041 3,791 6,054 EPS (sen) PER RM PER RM Dividend (sen) Dividend RM0.33 (%)

2 A. Background LISTING STATISTICS MAJOR SHAREHOLDERS Direct (%) Indirect (%) LISTING: Mesdaq HSC Healthcare Sdn Bhd LISTING DATE: 17 October 2006 Low Su-Shing Issue Price (RM): 0.33 Lim Oi Wah Par Value (RM): 0.10 Dr Aw Tar Choon Public Issue (mil): 40.0 Tan Sri Dato Seri Megat Junid Eligible directors & employees (mil) 10.0 BOARD OF DIRECTORS Public (mil) 8.3 Tan Sri Dato Seri Megat Junid Chairman Private Placement (mil) 21.8 Dr Aw Tar Choon Deputy Chairman Low Su-Shing Managing Director Paid-up Capital (RM'm) 16.5 Lim Oi Wah Deputy Managing Dir. Performa NTA (RM) 0.19 Tengku Putra Haron Ind. Non-Exec Director Market Capitalisation (RM'm) 54.5 Dr Chua Kok Seng Ind. Non-Exec Director Malaysia s 1 st stem cell bank - Established in 2001, StemLife Bhd (StemLife) is Malaysia s 1 st private stem cell bank to provide stem cell banking services, stem cell therapy and consultation services. Its principal services includes: I. Collecting, testing, processing and cyro-preservation (freezing of stem cells) of umbilical cord blood stem cells; II. Harvesting, testing, processing and cyro-preservation of peripheral blood stem cells; and III. Stem cell therapy and consultancy services. StemLife operates its cyro-preservation, processing and testing facility in 2 laboratories in Cyberjaya and Kuala Lumpur. The company has sales and marketing offices in Kuala Lumpur, Subang, Penang, Ipoh, Kuantan, Johor, Kuching and Kota Kinabalu. To-date, there are 72 diseases treatable with stem cell therapy. StemLife had been involved in 19 transplants for the treatment of leukemia, thalassaemia major, heart disease, diabetic foot ulcer and lymphoma. Status Established Applications Applications under Trial Applications in Research Phase Disease / Condition Thalassaemia Major, Cancers (breast, kidney, prostate, colon, ovary), Coronary Heart Disease, etc Heart Failure, Auto-immune Diseases Stroke, Parkinson's, Alzheimer's, Spinal Cord Injury, Osteoarthritis (Cartilage), Osteoporosis (Bone Fractures) B. Corporate Structure StemLife Bhd 50% SL Diagnostics SB (100%) Dormant Cell Therapy Innovation SB (100%) Dormant StemLife Properties SB (100%) 50% 50% StemLife Logistics SB (100%) Dormant Thai StemLife Co Ltd (40%) Source: Prospectus 2

3 What are stem cells? Stem cells are the master cells of the blood and the immune system, with the ability to renew and replace damaged bone marrow to create immune cells and stimulate the regeneration of damaged cells and tissue. When placed in an injured area and under the right conditions as well as given the right signals, stem cells function as builder cells -- assist in regeneration and repair from within. Stem cells are able to transform into other tissue types such as skin, bone, nerve and muscle cells. D. Principal Services Umbilical Cord Blood Stem Cells (UCBSC) Procedure: Stem cells are extracted from the remaining blood of the cut umbilical cord, collected into a blood bag, and sent to StemLife s laboratory for processing, testing and cyro-preservation. The blood contained in the baby s umbilical cord is rich in haematopoietic stem cells - particularly useful as they are immature which would avoid rejection problems. Benefits: I. A non-invasive procedure that does not interfere with the provision of medical care to the mother or her new-born; II. Readily available source of stem cells, the umbilical cord is routinely discarded after delivery; III. Exact tissue match to avoid rejection problems; IV. Avoids ethical issues surrounding embryonic stem cell collection. Target market: Expectant mothers Pricing: An upfront processing fee of RM2,500 and a storage fee of RM250 per annum. Peripheral Blood Stem Cells (PBSC) Procedure: Donors or patients will have to undergo a mobilization process (injected with a drug, Neupogen) to stimulate the production stem cells from the bone marrow. The stem cells are then harvested in a process similar to a dialysis (4-5 hours procedure) and the separated stem cells are collected into a bag for processing, testing and cyro-preservation. Benefits: I. Less invasive than the traditional bone marrow extraction and less taxing on the patient. II. In the absence of their own banked stem cells, the costs of procuring stem cell therapy overseas is in excess of RM100,000. Target market: Individuals diagnosed with a disease treatable with stem cell or individuals with a family history of diseases treatable with stem cell. Pricing: A one-off processing fee of RM15,000 and annual storage fee of RM1,800. 3

4 E. Competitive Factors Pioneer and market leader for private stem cell banking - Being a pioneer in the Malaysian market, StemLife has the first mover advantage to dominate 63% of the UCBSC banking industry. Cost competitiveness StemLife offers one of the most affordable prices within the South East Asian region. Assuming an UCBSC sample is stored for 5-years, StemLife s costs is at least 36% cheaper than the two private stem cell banks in Singapore. Companies Country One-off Processing Fee Annual Storage fee StemLife Malaysia RM2,500 RM250 CyroCord Sdn Bhd Malaysia RM2,500 RM250 Thai StemLife * Thailand Bt 40,000 (RM3,935) Bt 6,000 (RM590) CordLife Singapore S$1,400 (RM3,250) S$250 (RM580) StemCord Private Ltd Singapore S$1,000 (RM2,322) S$500 (RM1,161) * - StemLife holds a 40% equity interest in Thai StemLife Co Ltd. A biological insurance - "immortalise" good quality cells for future therapy. Purchasing a medical insurance may be able to offset a monetary uncertainty; however, stem cell banking offers an invaluable biological insurance. This is particularly so when one is diagnosed with an illness treatable by stem cells therapy, where the patient is rendered too weak for peripheral stem cell extraction. Barriers to entry I. High set-up costs. A new private stem cell bank requires an initial capital of RM1.8 mn to set up a laboratory and a further RM5 mn in medical equipment and technology transfers. II. Operational efficiency necessary to sustain the business. A private stem cell bank needs to acquire a customer base of at least 5,000 samples and process 250 UCBSC samples a month, in order to attain the level of operational efficiency necessary to remain sustainable. Backed by a clientele base of over 7,500, between January - July 2006, StemLife registered net additions of 430 new samples per month. III. New start-ups are susceptible to losses in the first 2 years, which may serve as an effective deterrent for new entrants. World-class laboratory and internationally accepted equipment I. Both laboratories in Cyberjaya and Kuala Lumpur - College of American Pathologists (CAP) accredited to meet worldwide standards of excellence; II. Preservation/storage tanks are maintained by liquid nitrogen at temperatures of 196 C, hence they are not susceptible to power supply outages, fire-resistant for up to 6 hours and moveable to transport to an alternative site; and III. The multi-compartment UCBSC and PBSC storage bags are US FDA approved. 4

5 F. Industry Stem cell banking industry is still its infancy stage, both in Malaysia and globally. In South East Asia, Malaysia s market size contributed a total of RM10.8 million, followed by Thailand with RM0.9 million. Over the next 5 years, the Malaysian stem cell banking market is expected to expand at a CAGR of 33.8% to RM46.5 million, based on the Government s estimate of 500,000 babies born every year. At present, UCBSC banking dominates the stem cell banking industry in Malaysia comprising of 99.3% of total storage while PBSC banking makes up the remaining 0.7%. Source: Frost & Sullivan G. Risks Competition. CyroCord Sdn Bhd, its sole competitor in Malaysia, garners the remaining 37% of the UCBSC market. Both CyroCord and StemLife charges identical storage and processing fee. However, relative to CyroCord, StemLife has the proven expertise in preparing stem cells for transplants and offers stem cell therapy as well as consultancy services. Ability to create awareness and educate the masses on the advantages of stem cell banking. StemLife s continual growth lies in its ability to create awareness and educate the masses about the advantages of stem cell storage. Even in the US, with more than 15 years of history and 25 private cord blood banks, penetration remained very low at 10% by the end of Three major companies, Cryo-Cell, Cord Blood Registry and Viacell represent about 80% of the marketplace. Note that all 3 US stem cell majors are currently loss-making entities. Other underlying risks are as follows: I. High dependence on the success rates and discoveries of new stem cell applications. II. Dependence on the key management and the availability of a skilled workforce, particularly in the Biochemistry field. III. Litigation risks - Note that insurance companies do not provide coverage on damaged/contaminated stem cells samples or loss in transit to laboratories. H. Plans going forward are: New stem cell applications for tendon and ligament injuries (by 2007); and for neurological conditions and cartilage damage (by 2008). Further strategic tie-ups with medical practitioners - StemLife s first of such partnerships is with HSC Healthcare Sdn Bhd, a leading private medical centre for heart treatment, to provide PBSC therapies for heart patients. To-date, the alliance has resulted in 6 stem cell heart transplants. StemLife entered into a MoU with Gleaneagles Hospital (Kuala Lumpur) and HSC Healthcare to set up a Stem Cell Resource and Therapy Centre in Gleneagles Intan Medical centre. The centre would serve as an avenue to promote public awareness on the benefits of stem cell therapy. 5

6 I. Utilisation of proceeds from public issue: Third Laboratory Additional Laboratory Equipment Logistics Expansion Branch Expansion Working Capital Estimated Listing Expenses Total RM 2.6 million RM 3.0 million RM 0.6 million RM 2.5 million RM 2.5 million RM 2.0 million RM 13.2 million Note: I. RM600,000 will be set aside to purchase 4 vehicles (at RM150,000 each) to transport collected blood samples from branch offices to its laboratories in Kuala Lumpur and Cyberjaya. II. RM2.5 million has been allocated for expansion of its current branches in Penang, Johor Bahru, Kuching, Kota Kinabalu and Ipoh. I. Recommendation and Valuation Recurring revenues provide earnings visibility moving forward. Based on a birth rate of 500,000 per annum, with about 20% delivered at private hospitals, StemLife aims to capture about 5%-10% of the new deliveries. The company aspires to grow its UCBSC new sign-ups by 4,800 in FY12/2006 and 5,760 in FY12/2007. This would effectively double StemLife s clientele base by the end of FY2006 and further expand by another 60% in FY12/2007. Based on the projected uptake momentum, we believe that the company will breach the 10,000 customers mark by mid Hence, its recurring revenue would grow in tandem with its customer base, which would provide clear earnings visibility for future dividend payouts. Debt-free and sitting on a cash pile of RM8.8 million. StemLife is projected to grow at a 3-year revenue and pre-tax profit CAGR of 55% and 74% respectively for FY2005-FY2007. Based on an undemanding PEG ratio of 0.3X and a PER of 16X its FY06 EPS of 3.7sen, our target price for StemLife is RM0.60, with an 82% upside potential. We believe the premium is justified as its decent dividend yield and attractive growth potential should lend support to its share price. BUY. IMPORTANT: This report has been prepared from sources that are believed to be reliable but we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates in this report are subject to change without notice. We do not accept any liability that may arise from the use of information in this report. Inter-Pacific Research Sdn Bhd and or its associates may from time to time have interest and/or underwriting commitments in the company being reported. This report is for internal circulation only and the contents or any part thereof cannot be reproduced in any manner whatsoever except with the prior written consent of Inter-Pacific Research Sdn Bhd. 6