Core views
The company released the “Double Improvement of Quality and Return” action plan, which is expected to help the company achieve high-quality development. In the short term, the company is expected to continue to benefit from new domestic medical infrastructure and the continuous expansion of overseas high-end customer base. Entering the cardiovascular field through mergers and acquisitions of Huitai Medical is expected to open up broad growth space. In the medium to long term, the company has an efficient R&D system and excellent channel management capabilities, and epitaxial mergers and acquisitions are expected to further expand its layout. With the improvement of IVD's overseas supply chain, the pace of the company's internationalization is expected to further accelerate.
occurrences
The company released an action plan to double improve quality and return
On February 18, Mindray Healthcare issued an announcement and formulated the “Double Improvement of Quality and Return” action plan.
Brief review
Focusing on its main business, from a domestic device leader to a global device leader, Mindray Medical is a leading domestic medical device company. After more than 30 years of development, the company continues to be deeply involved in the three major businesses of life information and support, in vitro diagnosis, and medical imaging, and already has the most complete product line layout in the same industry. Various products such as monitors, anesthesia machines, blood cells, and ultrasound rank high in the global market share, and have the ability to compete on the same stage as leading international medical devices. In 2022, the company's revenue ranked 27th among global medical device companies, up 4 places from 2021, and 9 places up from 36th place in 2020. In the future, the company is expected to further focus on its main business, seize market opportunities, and achieve steady growth. According to the company's goals, it is expected that by 2025, the company is expected to enter the world's top 20 medical device list and further break through to the top ten global industry positions.
Continue to maintain high R&D investment, and continuously iterate and upgrade products
The company always attaches great importance to R&D system construction, maintains high R&D investment all year round, and carries out a global R&D organization. The company currently has 12 R&D centers around the world, distributed in Shenzhen, Wuhan, Beijing, Nanjing, Xi'an, Chengdu, Hangzhou, Silicon Valley in the US, New Jersey in the US, Minnesota, Finland and Germany. By the end of last year, the company had more than 4,400 R&D personnel. In the first three quarters of 2023, the company invested 2,811 billion yuan in R&D, accounting for 10.3% of revenue, an increase of 23.3% over the previous year.
In the future, the company is expected to maintain strong investment in R&D and continue to promote product innovation and iterative upgrading.
Overseas share continues to rise, accelerating breakthroughs in the overseas high-end customer base
The company is at the forefront of the domestic medical device industry in terms of international layout. Overseas revenue has maintained steady growth, and overseas market share continues to increase. In the third quarter of 2023, the company's overseas revenue growth rate accelerated significantly. Among them, the growth rate of developing countries further accelerated to more than 30%. The two major overseas production lines of in vitro diagnosis and life information and support achieved growth of more than 40% and 20% respectively in the third quarter. The company's product competitiveness in the field of life information and support has reached a world-class level. With the advantages of major products such as high-end monitors and anesthesia machines and comprehensive IT solutions, the company continues to break through high-end hospitals and large medical groups in Europe, America and developing countries. In the first three quarters of 2023, the company's IVD product line broke through nearly 350 key hospitals and laboratories overseas, including nearly 100 third-party chain laboratories; the medical imaging product line broke through more than 150 blank high-end customers overseas, and more than 50 of the high-end customers that had already broken through achieved repeated procurement. In the future, the company is expected to further enhance product competitiveness and brand influence overseas, and promote international market sales from single products to departmental, whole-hospital and cross-regional solutions.
Excellent targets for epitaxial mergers and acquisitions, continuously improving the layout of the industrial chain
The company actively improves the industrial chain layout through epitaxial mergers and acquisitions, and has rich experience in mergers and acquisitions integration. In 2023, the company completed the acquisition of 75% of the German DiaSys, a world-renowned IVD brand. It is expected that supply chain platforms for overseas in vitro diagnostic services such as chemiluminescence will be gradually introduced and improved, capacity building for overseas localized production, warehousing, logistics, and services will be strengthened, and accelerated breakthroughs in the internationalization of IVD business will be promoted. On January 28, 2024, the company announced that it intends to use 6.65 billion yuan of its own capital to acquire control of Huitai Medical through an “agreement transfer+voting rights” method. Huitai Medical is a leading domestic enterprise in the field of electrophysiology in China and a leading domestic enterprise in the cardiovascular field. It has been deeply involved in the cardiovascular circuit for many years, and has deep technical reserves and a rich product matrix. Through this merger and acquisition, the company is expected to achieve rapid entry into the cardiovascular field, greatly increasing the market space available for the company's products, and is expected to add new growth impetus to the company's long-term development.
Steady growth in performance, with emphasis on shareholder returns
In the first three quarters of 2023, the company achieved revenue of 27.304 billion yuan (+17.20%), net profit to mother of 9.834 billion yuan (+21.38%), net profit of non-return to mother of 9.686 billion yuan (+21.02%), and maintained steady growth in performance. In order to further implement the national policy of encouraging cash dividends from listed companies, taking into account investors' return needs and the long-term development of the company, the company first announced profit distribution in the third quarter of 2023. Based on the total share capital of 1.12 billion shares on September 30, 2023, a cash dividend of RMB 43 (tax included) will be distributed to all shareholders for every 10 shares, for a total cash dividend of about RMB 5.212 billion. Since the company went public in 2018, dividends have been implemented for six consecutive years, with a cumulative total dividend of nearly 23 billion yuan (including 2 billion yuan in share repurchases).
It is expected to benefit from new domestic medical infrastructure and overseas market expansion in the short term. In the medium to long term, it is expected that increased compliance requirements in the pharmaceutical industry will continue to bring growth momentum in the short term. However, the company's strong compliance and outstanding product competitiveness are expected to continue to benefit from new domestic medical infrastructure and the continuous expansion of overseas high-end customer base, and enter the cardiovascular field through mergers and acquisitions of Huitai Medical, which is expected to open up broad growth space. In the medium to long term, the company has an efficient R&D system and excellent channel management capabilities, and epitaxial mergers and acquisitions are expected to further expand its layout. With the improvement of IVD's overseas supply chain, the pace of the company's internationalization is expected to further accelerate. We expect the company's revenue in 2023-2025 to be 349.73, 420.15, and 50.442 billion yuan, respectively, with growth rates of 15.2%, 20.1%, and 20.1%, respectively. Net profit attributable to mother was 115.38, 138.40, and 16.624 billion yuan respectively, with growth rates of 20.1%, 20.0%, and 20.1%, respectively. Based on the closing price on February 8, 2024 (297.38 yuan), 2023-2025 PE was 31, 26, and 22 times, respectively, maintaining the buying rating.
Risk warning
1) Risk of changes in collection policy: If the collection policy exceeds expectations, it may cause the price of IVD reagent terminals to drop; if the price hits the factory price, it may adversely affect the company's profit margin; 2) Risk of increased industry competition: some of the company's products have a high share share in the domestic market, and if competition among domestic enterprises intensifies in the future, it may fall short of expectations; 3) Overseas market risk: Changes in overseas economic situation may affect the growth rate of overseas performance, and exchange rate fluctuations may affect the company's performance; 4) New product development and promotion risks: the company's new product development and promotion risk If the progress of new business development falls short of expectations, it may adversely affect the company's future growth; 5) there is a risk that the bidding process will be delayed due to policies such as increased compliance requirements in the medical industry; 6) The merger and acquisition progress falls short of expectations: the transaction will then need to complete antitrust review, compliance confirmation, transfer registration, etc., and after the transaction is completed, the company will face risks related to transition period integration and continuous operation management.