Core views

The company's 2023 performance was in line with expectations. The coronary, peripheral and OEM businesses achieved high growth, and the electrophysiology business achieved steady growth. Looking ahead to 2024-2025, new high-end atrial fibrillation products such as high-density standardized catheters, pressure-sensitive ablation catheters, and pulse ablation catheters will be approved one after another, and the company's atrial fibrillation market share is expected to gradually increase, and the electrophysiology business is expected to enter an accelerated period of domestic replacement in 2025; in the field of coronary and peripheral business, the company's therapeutic products such as thoracic aortic stents, venous venous filters, and spinous balloons are expected to be approved and contributed to increased performance. It is expected that the coronary business will achieve steady growth in 2024, and the peripheral business is expected to maintain high growth; in terms of international products, the company's business is expected to grow steadily in 2024, and the peripheral business is expected to maintain high growth; Registration is working Accelerate progress and continuous market development. At the same time, with Mindray's strong overseas marketing network, the pace of internationalization is expected to accelerate and open up a new growth curve.

occurrences

On March 24, 2024, the company released its 2023 annual report

According to the announcement, the company achieved operating income of 1,650 billion yuan in 2023, an increase of 35.71% over the previous year, achieved net profit of 534 million yuan, an increase of 49.13% over the previous year, and realized net profit without deduction of 468 million yuan, an increase of 45.54% over the previous year. Net operating cash flow was 689 million yuan, up 87.52% year over year. EPS is 8.04 yuan/share.

The company plans to distribute a cash dividend of RMB 20.00 (tax included) to all shareholders for every 10 shares based on the total share capital registered on the share registration date after deducting the number of shares in the special share repurchase account. The company plans to increase 4.5 shares for every 10 shares of all shareholders using the capital reserve fund.

Brief review

The performance was in line with expectations, the vascular intervention business grew strongly, and the number of electrophysiological surgeries achieved high growth

The company's 2023 revenue, net profit attributable to mother, and net profit after deduction were RMB 16.50, 5.34, and 468 million yuan, respectively, up 35.71%, 49.13% and 45.54% year-on-year, respectively. The performance growth was strong and in line with expectations. The profit side growth rate was higher than the revenue side growth rate, mainly due to the company's remarkable cost reduction and fee control results, gross margin remained relatively stable, and the cost ratio declined year-on-year due to scale effects during the period. 23Q4's single quarter revenue, net profit attributable to mother, and net profit after deducting non-return to mother were $437, 1.31, and 108 million yuan, respectively, up 32.80%, 34.11%, and 21.78% year-on-year, respectively.

Looking at the business split, the electrophysiology business achieved revenue of 368 million yuan (+25.51%), and completed more than 10,000 3D electrophysiological surgeries in more than 800 hospitals, an increase of more than 200% over the previous year; revenue for coronary access products was 791 million yuan (+38.98%); revenue for peripheral interventional products was 256 million yuan (+40.36%); revenue for OEM products was 210 million yuan (+31.67%); revenue for non-vascular intervention products was 16.39 million yuan, mainly from the company's newly laid out urinary system product line.

Looking ahead to 2024-2025, new high-end atrial fibrillation products such as high-density standardized catheters, pressure-sensitive ablation catheters, and pulse ablation catheters will be approved one after another, and the company's atrial fibrillation market share is expected to gradually increase, and the electrophysiology business is expected to enter an accelerated period of domestic replacement in 2025; in the field of coronary and peripheral business, the company's therapeutic products such as thoracic aortic stents, venous filters, and spinous balloons are expected to be approved and contributed to increased performance. The coronary business is expected to achieve steady growth, and the peripheral business is expected to maintain high growth; in terms of international business, the company's product registration process is expected to maintain high growth. Accelerate progress, The market continues to expand, and with Mindray's strong overseas marketing network, the pace of internationalization is expected to accelerate and open up a new growth curve.

Domestic product market coverage and hospital penetration rates continue to increase, and the coverage rate of vascular intervention products and electrophysiology products of companies with outstanding international market performance continues to increase in terminal hospitals. By the end of 2023, the company's electrophysiology products had covered more than 1,100 hospitals. Among them, adjustable 10-pole coronary sinus catheters maintained a leading share in this category market segment, and adjustable curved sheath tubes completed the admission of more than 200 centers through the Fujian Union volume procurement project; in 2023, the number of domestic vascular interventional product admissions increased by more than 600 year-on-year, covering more than 3,600 hospitals. Among them, peripheral admissions increased by more than 30% and coronary artery lines grew by nearly 20%.

In addition, the company's international business showed a good growth trend. In 2023, international business revenue increased 72.62% year on year. Among them, the Middle East, Africa and the CIS region increased by more than 100% year on year, while other regions achieved steady growth. From a product line perspective, PCI's own brands and EP's own brands are the driving sources of international business growth.

After the acquisition of Huitai's control, Mindray Medical is expected to co-develop in terms of R&D, marketing, and internationalization. On January 28, 2024, Mindray Medical announced that it plans to acquire 21.12% of Huitai Healthcare's shares through an agreement transfer through its wholly-owned subsidiary Shenmai Holdings, with a total transfer amount of about 6.652 billion yuan. After the transaction is completed, Mindray Medical will jointly hold 24.61% of Huitai Healthcare's shares through its subsidiary Shenmai Control and its co-operator, Zhuhai Tongsheng. In the future, the two shareholders are expected to co-own 24.61% of Huitai Healthcare's shares in R&D and marketing. . 1) R&D side: In the short term, with the help of Mindray's R&D system, the company's existing relatively weak equipment fields such as 3D labeling systems and radio frequency ablation instruments are expected to be significantly strengthened. Combined with years of technology accumulation in the field of consumables, the company's high-end products such as magnetoelectric positioning high-density labeling catheters and magnetic positioning pressure-sensing catheters will also be launched, and the increase in the localization rate in the field of atrial fibrillation is expected to accelerate significantly in the future. 2) Marketing side: Mindray has more than 50 overseas subsidiaries and more than 3,000 employees, has a presence in major global markets, and has the ability to provide users with comprehensive product promotion, delivery and services. Through gradual integration, Huitai will use Mindray's overseas marketing platform in the future to meet customer needs in the local market and accelerate the development of overseas business.

The product pipeline is rich, and the company focuses on the field of atrial fibrillation surgery consumables and PFA to continue to advance the clinical and application progress of products under development in various businesses. By the end of 2023, the company's coronary and peripheral implant products such as thoracic aortic stents, venous venous filters, and spring rings had entered the registration and repair stage, and carotid stents and TIP laminated stents had entered clinical trials. In the field of electrophysiology, the company's research projects of pulse ablation catheters, pulse ablation instruments, high-density measurement catheters, pressure radiofrequency meters, and pressure-sensitive ablation catheters have entered the clinical stage. In addition, the company has set up a non-vascular intervention business. By the end of 2023, ureteral stents and accessories and ureteral dilator balloon catheters for the urinary system product line have all entered the registration review stage; the one-time stone removal basket for the hepatobiliary system product line has entered the registration review stage. Abundant research pipelines are expected to become the core driving force for the company's long-term sustainable development. In particular, the layout in the field of consumables related to atrial fibrillation will further enhance the core competitiveness and market share of the company's electrophysiology business.

Expenses are well controlled, and operating cash flow has increased significantly

In 2023, the company's gross margin was 71.27%, which is basically the same year on year. Among them, the gross margin of the electrophysiology business was 74.45%, down 3.54 percentage points year on year. It is expected that the company's factory price was adjusted after the implementation of the collection in the Fujian Electrophysiology Alliance; the gross margins of coronary pathway and peripheral intervention products were 71.87% and 74.75%, respectively, an increase of 2.50 points and 3.10 percentage points year-on-year, respectively. It is expected mainly due to the company actively implementing cost reduction strategies, including increasing the level of automated production and reducing raw material procurement costs Other measures. The sales expense ratio is 18.46%, down 1.36 percentage points year on year. It is expected that the cost rate will decrease mainly due to rapid growth in sales scale; the management expense ratio is 4.98%, down 0.49 percentage points year on year; financial expenses ratio is -0.20%, up 0.02 percentage points year on year; and R&D expenses rate is 14.42%, up 0.02 percentage points year on year.

Net operating cash flow in 2023 was 689 million yuan, up 87.52% year over year, mainly due to the increase in the company's sales scale, increased repayment, and increased operating profit. The net cash flow from investment activities was 582 million yuan (-135 million yuan in the same period last year), mainly due to a decrease in the company's temporary idle capital raised capital and financial management expenses compared to the same period last year. Net cash flow from financing activities was -246 million yuan (-295 million yuan in the same period last year), mainly due to cash payments from the company's share repurchases in the same period last year. The number of accounts receivable turnover days in 2023 was 9.66 days, a decrease of 2.35 days; the number of accounts payable turnover days was 31.87 days, a decrease of 0.18 days; the number of inventory turnover days was 252.77 days, a decrease of 56.27 days year on year. Inventory levels were well controlled.

The company's other financial indicators are generally normal.

It has been deeply involved in the field of electrophysiology and vascular intervention for many years. The peripheral, neurological intervention and non-vascular intervention business can be expected to grow. The company has been deeply involved in the field of electrophysiology and vascular intervention for many years, while also laying out emerging fields such as peripheral, neurological intervention, and non-vascular intervention, with great potential for long-term growth. In the short term, the company's coronary pathway core products have excellent performance and good clinical evaluations, which are expected to drive good growth in the coronary business. Looking at the medium to long term, in the future, with the continuous optimization of the performance of the company's 3D electrophysiology equipment and consumables products, the successive approval of key consumables for atrial fibrillation, and breakthroughs in PFA (pulse ablation) technology, the electrophysiology domestic replacement process is expected to accelerate, and the superimposed peripheral business, neurological intervention, and non-vascular intervention businesses are still in their infancy or rapid growth, which is expected to open a second growth curve; in terms of international business, the company's products are gradually approved overseas, and the market continues to develop. At the same time, with Mindray's strong overseas marketing network, internationalization is expected to accelerate and contribute to the third growth curve. We expect the company's revenue to increase 30%, 33%, and 33% year-on-year respectively in 2024-2026, and net profit to mother is expected to increase 29%, 35%, and 34%, respectively. Based on the closing price of March 28, 2024 (421.46 yuan), the corresponding PE is 41, 30, and 23 times, respectively, maintaining a “buy” rating.

Risk warning: Risk of tightening industry compliance policies, risk of failure in development and registration of new products, risk of brain loss in R&D and management, risk of market competition (Currently, in China's electrophysiology and vascular interventional medical device industry, foreign-funded brands still occupy an absolute dominant position. Foreign brands such as Johnson & Johnson, Abbott, Boston Scientific, and Termao occupy more than 80% of the domestic market share with their strong R&D advantages, sound product systems, and first-mover channel advantages. From the perspective of competitive manufacturers, there are not many competitors in the field of electrophysiology and vascular intervention, but after years of market work and nurturing clinicians, foreign brands have cultivated clinicians' usage habits to a certain extent, and the company still needs a certain amount of time to increase the usage of the company's products), the risk of falling product prices due to industry policies, sales channel risks, and dealer management risks, collection policy risks, product quality and potential liability risks, risks related to industry regulation, product registration risks, and exchange rate fluctuations.