Conference call takeaways
- We hosted an investors call with Mindray for updates on the medical device industry and the Company’s operations.
- The negative impact of the COVID-19 outbreak on the Mindray’s overall operations was limited, mainly because of the resilient growth of its IVD products. Sales also recovered since Jun 22 because of the easing of the COVID-19 prevention measures.
- In Apr 22, Jiangxi province announced the centralized procurement of liver function biochemical test reagents. Mindray had prepared for this by expanding its upstream material supply, warehouse network, and logistics system. Mindray’s market share of biochemical tests is expected to further increase by securing government tenders.
- During the discussion, the Company revealed that it would release a super high-end ultrasound system in 2023. Because of high technology barriers, this field is dominated by imported equipment. By entering the super high-end ultrasound equipment field, Mindray can further expand its market share.
- Our forecast for Mindray’s sales growth in 2022F is unchanged. Reiterate Add with an unchanged PER-based TP of Rmb518.
IVD products led revenue growth in 2Q22
The COVID-19 outbreak in 2Q22 had a negative impact on Mindray’s domestic operations performance, but the impact on its overall performance was limited, mainly because of the resilient growth of its IVD products. Overall, sales of IVD products performed well in 2Q22 and 1H22. The IVD sector is expected to be a leading growth driver for Mindray in the coming years both domestically and internationally. Domestically, 2,000 BC-7500s are expected to be installed in 2022 driving the growth of Mindray’s hematology business. The BC-7500 was launched in 2020 and resulted in Mindray’s hematology analysis business ranking No.1 domestically for the first time in 2021. In 2021, 1,200 BC-7500s were installed, contributing Rmb250m to the top-line, and 1,000 units were installed in 1H22. A high growth rate for Mindray’s IVD business was also expected in overseas markets because of a) the larger market for IVDs; b) the resumption of hospital services; and c) the expected launch of a new five-part differentiation hematology analyzer, coupled with an erythrocyte sedimentation rate (ESR) test, which is expected to be a market leader.
Centralized procurement expected to help Mindray gain market share quickly
In 2021, Anhui province started a round of centralized procurement programs for chemiluminescence analysis items. Mindray won 14 bids, which helped it gain chemiluminescence analysis market share quickly. As of 2H22, 115 analyzers have been installed, half of them in medium and large hospitals. Although the average price cut in this round was 47%, Mindray’s gross profit margin was not affected because of the higher volume. Unlike Mindray’s hematology business, in which it had already established a leading position, the domestic chemiluminescence analysis products still have room to improve when competing with imported products. To catch up, in 2021, Mindray acquired an upstream supplier company, Hytest. Biochemical test reagents are also subject to centralized procurement. In Apr 2022, Jiangxi announced that it would lead the centralized procurement of liver function biochemical test reagents. Mindray had been preparing for centralized procurement by expanding its upstream materials supply, warehouse network and logistics system. We believe Mindray’s market share of biochemical test regents will further increase from 12% through winning bids in the centralized procurement program.