China'sMindray Medical International (
) delivered a healthy dose of good news to shareholders when it
released preliminary 2012 results Jan. 7.
The maker of inpatient-monitoring, in-vitro diagnostic and
medical imaging gear said its revenue climbed roughly 20% to
$1.06 billion, and its net income rose an estimated 16% to $207
million. Analysts polled by Thomson Reuters forecast 2012
earnings grew 18% to $1.67 a share.
Mindray said the solid showing was driven by strong sales in
China and key emerging markets, 10 new products and a nice lift
It expects 2013 revenue to rise at least 17% vs. a year
Investors liked the news. Mindray's stock was up 3.2% the day
it was announced, Jan. 7. The stock is trading near a 52-week
What's propelling the stock?
"For a company of their size to be growing at the rate they
are, with the exposure to markets they have is a pretty unique
company," said Jefferies analyst Raj Denhoy. "Every major medical
device company out there is trying to get exposure to emerging
markets as a source of growth. Mindray already has a big part of
its business coming from those markets."
Mindray gets more than 75% of its sales from China and
emerging markets in spots such as Asia, Africa, Eastern Europe
and Latin America, says Morningstar analyst Charlie Mille r,
citing its latest tally in 2011.
The company has built a lot of its muscle in China, where it
plays the "middle ground" in pricing, says Miller.
It charges hospitals and other health care facilities that use
its medical devices about a 20% premium over the local
mom-and-pop outfits, she says. And its products are priced from
20% to 30% below international rivals likeGeneral Electric (
)andKoninklijke Philips Electronics (
"They offer a very competitively priced proposition working in
the low-cost niche in the Chinese market, and they've been very
successful there," said Miller. "They're addressing the
middle-market hospitals and the rural sector that had long been
ignored by their big international rivals."
Mindray's preliminary results announcement followed a string
of negative news on the company the past few months. That
included a voluntary recall of its A3/A5 Anesthesia Delivery
System and a warning letter from the Food and Drug Administration
concerning quality system violations at its North American
facility. It also faces a federal lawsuit brought by Masimo Corp.
alleging patent infringement and breach of contract.
Mindray said it "intends to defend the actions."
Despite these issues Mindray has remained an attractive
investment, says Denhoy. Investors have overlooked these
"potentially troubling" issues, he adds, because Mindray's
results are strong and there aren't a lot of medical device
companies growing the way it is.
Mindray has racked up double-digit revenue gains in all but
one of the past 12 quarters. And earnings have grown at that rate
in all but one of the past four quarters.
In the third quarter, earnings rose 17% to 42 cents a share.
Sales grew 18% to $257.1 million.
China was its fastest grower with sales up 25.9% to $117.7
million, while international sales rose 11.6% to $139.4
On the product front, in-vitro diagnostic product sales grew
the most with a 30.3% pop to $72.6 million, contributing 28.3%
total revenue. Patient monitoring and life support product sales
grew 8% to $103.8 million, accounting for 40.4% of total
Analysts surveyed by Thomson Reuters see a continuation of
strong yearly gains. They expect a 17% rise in earnings in 2013
and a 14% gain in 2014.
Miller forecasts 19% revenue growth on an annual basis for the
next five years.
Mindray continues to see strong product demand, and it has a
lot of new products coming out that should help drive growth, she
says. Recent acquisitions should also give it a lift.
One of its recent buys came in July, when Mindray closed on
the purchase of of a controlling stake in Wuhan Dragonbio
Surgical Implant Co., which specializes in trauma, spine, joint
and other surgical-care products.
It paid $35.5 million for the company, which posted $7.7
million in sales in 2011.
"The orthopedic consumable market has high barriers to entry,
but this deal will give us instant access to this promising and
sizable market," Minghe Cheng, Mindray's chief strategy officer,
said in a June 6 news release.
Mindray cited a report by consulting firm Frost & Sullivan
that pegs the orthopedics market in China at roughly $30 billion
in 2011, with an annual growth rate near 8%.
Orthopedics is a very-high-growth segment, which should offer
a lot of opportunities for Mindray in China, Miller says.
Miller expects Mindray to make more buys.
Despite the slowdown in China's economy, health care spending
hasn't taken a hit, says Denhoy. The Chinese government announced
a $128 billion health care reform package in 2009 and has
announced extensive plans for community hospital upgrades, of
which Mindray should capture its fair share, he writes in a