Mindray Medical Keeps Up Strong Sales, Profit Gains

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China'sMindray Medical International ( MR ) 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 from acquisitions.

It expects 2013 revenue to rise at least 17% vs. a year earlier.

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 high.

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."

Emerging 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 ( GE )andKoninklijke Philips Electronics ( PHG ).

"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 million.

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 revenue.

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.

Recent Buys

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 report.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: GE , MR , PHG

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