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Mindray Retained at Neutral

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We reiterate our Neutral recommendation on Mindray Medical International Limited . Mindray’s first-quarter 2012 adjusted earnings per share missed the Zacks Consensus Estimate. Reported net income inched lower 3.1% year over year to $36.6 million (or 31 cents per share) in the quarter.

Sales were up sharply 21.1% year over year to $219 million, in the first quarter, beating the Zacks Consensus Estimate of $217 million. The company has a large domestic sales infrastructure, which gives it better access to medium-sized county hospitals. In China, it beats other multinationals on price and defeats local players, who have cheaper products, on brand recognition. In western markets, the company targets mid-market, price-sensitive customers.

Mindray is a bellwether in the Chinese MedTech industry with a solid international presence. A key distinction with domestic competitors is that the majority of Mindray’s products have CE Mark and/or Food and Drug Administration (“FDA”) clearance.

Mindray maintains a decent product pipeline and brings out several new products each year. New products contribute in a major way to Mindray’s revenues. In 2011, the company launched about 13 new products.

The company has entered the premium segment globally, where its competitive advantage is still unclear. Also, on the negative side, health care reform, in China and the U.S., may reduce demand for Mindray’s products. Competition is fierce and leads to price erosion over time.

Mindray’s competitors, in different niche segments, include GE Healthcare, a part of General Electric (GE - Free Report) , Philips (PHG - Free Report) and Siemens . Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).

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