Mindray Medical International Limited (MR), a major Chinese medical devices company, reported third-quarter fiscal 2011 adjusted (excluding one-time expenses other than stock-based compensation expense) earnings per share of 34 cents, matching the Zacks Consensus Estimate. Reported net income inched up 3.8% year over year to $37.4 million (or 31 cents per share) in the third quarter.
Revenues
Revenues were up sharply 29.8% year over year to $218.4 million, exceeding the Zacks Consensus Estimate of $196 million. Mindray posted outside China sales of $124.9 million, up 25.9% year over year. Revenues in China increased 35.4% year over year to $93.5 million in the reported quarter. Revenue from emerging markets was up 30% year over year.
Segment-wise Revenues
Patient Monitoring & Life Support Products (44% of total sales) sales increased 32.4% year over year in the reported quarter to $96.1 million. In-Vitro Diagnostic Products (25.5% of total revenue) revenues were $55.7 million, up 29.3%. Revenues from reagents grew, contributing 31.3% of In-Vitro Diagnostic segment sales during the quarter.
Medical Imaging Systems(24.4% of total sales) sales were $53.2 million, a growth of 24.5%. Other revenues (6.1% of total revenue) were up 35.9% to $13.4 million.
Margins
Adjusted gross profit stood at $121.2 million in the quarter, higher 21% year over year. Adjusted gross margin of 55.5% was lower than 59.5% in the year-ago period.
Adjusted selling expenses were $39.3 million, or 18% of total net sales, versus 17.2% a year ago. Adjusted general and administrative expenses were $19.5 million, or 8.9% of sales, versus 8.8% a year ago. Adjusted research and development expenses were $18.4 million, or 8.4% of sales, compared with 8.3% in the prior-year quarter.
Adjusted operating income was $43.9 million in the quarter, a year-over-year growth of 3.5%. Adjusted operating margin was 20.1%, lower than 25.2% in the year-ago quarter.
Balance Sheet and Cash Flow
As of September 30, 2011, Mindray had $532.2 million in cash and liquid investments, up about 13.9% on a sequential basis. Net cash generated from operating activities was $29.9 million in the third quarter compared with $27.9 million in the year-ago period. Capital expenditure amounted to $19.4 million compared with $17 million in the year-ago quarter.
Share Repurchase
On November 7, 2011, the Board of Directors of Mindray authorized a share repurchase program of up to $100 million, which will remain valid till December 2012.
Revenue Outlook Raised
Mindray continues to provide guidance on a full year basis. The company raised its sales growth guidance to over 20% (from over 16% earlier) for fiscal 2011. It also affirms adjusted net income for the year to increase over 10% year over year. The guidance does not take into account tax advantage on account of key software enterprise status ($7.6 million and $8.6 million in the first quarters of 2011 and 2010, respectively) and assumes a corporate tax rate of 15% on the Shenzhen subsidiary. The forecast for capital expenditure, for fiscal 2011, remains about $70 million to $80 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.
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 General Electric (GE), Philips (PHG) and Siemens (SI). We currently have a long-term Neutral rating on the stock.
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