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Mindray Beats in 4Q, Profit Up

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Chinese medical devices major Mindray Medical International Limited’s fourth-quarter 2012 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 49 cents narrowly beating the Zacks Consensus Estimate of 48 cents. For 2012, adjusted earnings per share of $1.65 missed the Zacks Consensus Estimate of $1.67. Reported net income rose 19.3% year over year to $55.8 million (or 47 cents per share) in the quarter.


Revenues were up sharply 19.7% year over year to $316.1 million, in the fourth quarter, beating the Zacks Consensus Estimate of $304 million. For 2012, sales were up 20.4% to $1060.1 million higher than the Zacks Consensus Estimate of $1056 million. 

During the reported quarter, Mindray recorded ex-China sales of $168 million, up 14.7% year over year. Revenues in China increased 25.9% year over year to $148.1 million in the reported quarter. The company performed well in emerging markets.

Segment-wise Revenues

Patient Monitoring & Life Support Products (42.7% of total sales) revenues grew 13% year over year in the reported quarter to $135 million. In-Vitro Diagnostic Products (26.2% of total revenue) revenues were $82.9 million, up 29.8%. Revenues from reagents contributed 36.9% of In-Vitro Diagnostic segment sales during the quarter. 

Medical Imaging Systems (23.8% of total sales) sales rose to $75.4 million, a growth of 15.8%. Other revenues (7.3% of total revenue) were up 45.3% to $22.8 million.


Adjusted gross profit amounted to $184.8 million in the quarter, higher 27.9% year over year. Adjusted gross margin was 58.5%, higher than 54.7% in the year-ago period.

Adjusted selling expenses were $51.2 million, or 16.2% of total net sales, compared with 19% a year ago. Adjusted general and administrative expenses were $36 million, or 11.4% of sales, versus 6.3% a year ago. Adjusted research and development expenses were $31.9 million, or 10.1% of sales, compared with 9.3% in the prior-year quarter.

Adjusted operating income stood at $65.8 million in the quarter, a year-over-year growth of 24.2%. Adjusted operating margin was 20.8%, higher than the 20.1% in the year-ago quarter.

Balance Sheet and Cash Flow

As of December 31, 2012, Mindray had $862.9 million in cash and liquid investments, up about 42.9% from a year ago. Long-term bank loan stood at $50 million, up 42.8% from a year ago. Net cash generated from operating activities was $144.9 million in the quarter (up 50.2% year over year) while capital expenditure amounted to $18.4 million.


Mindray provides guidance on a full year basis. The company forecasts revenue growth of 17% or more for 2013. It also expects adjusted net income for the year to increase by a minimum of 15% year over year. The guidance does not take into account any tax advantage on account of software business status during 2011 and 2012, which might be received in 2013. The guidance incorporates an income tax rate of 15% for the Shenzhen subsidiary. The forecast for capital expenditure for 2013 is about $130 million.   

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 2012, the company launched 10 new products and acquired four companies.

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

Cyberonics Inc. , Given Imaging Ltd. and Novadaq Technologies Inc. carry a Zacks Rank #1 (Strong Buy ) and are expected to do well.

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