Healthy state

Mindray vies with Wens as ChiNext’s top dog


Li: Singapore’s third richest man

It ended a decade-long affair with the US capital markets when it delisted from New York in 2016 and opted to return to China and relist there last year instead.

Now Shenzhen Mindray Bio-Medical Electronics, a medical equipment maker, is vying with Wens Foodstuff Group, a pork producer, to become the largest company on Shenzhen’s ChiNext (see WiC379). Following a steady rise, its market capitalisation crossed Rmb200 billion ($29 billion) as of Wednesday, while Wens’ stood at Rmb203 billion. That makes Mindray’s chairman Li Xiting, an Anhui native with Singapore citizenship, the third richest person in the city-state with a net worth of $8.2 billion.

Mindray’s market value has soared nearly 135% since listing on ChiNext last October. Buoying the bull run was its inclusion in the MSCI index in May, which steered a 55% increase in buying from foreign investors.

Mindray is one of the leaders in China’s medical device industry, which is projected to grow 15-20% annually through to 2023, according to Caixin. Worth around Rmb445 billion in 2017, the sector is expected to race ahead of other segments in China’s booming healthcare market. At present the ratio of drug-to-medical device sales in China is around 3:1, versus 1:1 in the US.

What really tantalises investors is the potential for Mindray to grab market share from foreign players such as Johnson & Johnson, Philips, Siemens and GE, which together used to command at least 70% of China’s medical devices market. As stated in the “Made in China 2025” initiative, Beijing is hoping to increase the use of domestically-produced devices in hospitals to 50% by 2020, and 70% by 2025.

Some local governments are already pursuing the plan. In Sichuan, hospitals have been instructed to use only China-made devices in 15 categories, from respirators to PET-CT scanners, the Financial Times reports. It also noted that multinationals’ share of orthopaedic implants had declined to less than 50% from 80% in the last few years, as state insurance funds, which cover an increasing proportion of medical costs, give preference to local products.

Mindray is benefiting from the trend in a major way. “We have a 50% share in China’s high-end patient monitor market, a cut above Philips,” Li said in a televised interview last month. Having owned the patient monitoring unit of Datascope from the US since 2008, Mindray drew 45% of its income from around 190 countries outside of China as of 2017. But the portion is shrinking as its home market grows at a gallop. “China is currently the fastest growing market with 15% growth every year. It doesn’t make sense if you can’t grow your business in such an environment. In contrast, the US logged only single-digit growth,” added Li.

In the first quarter, Mindray booked a 21% year-on-year increase in revenue to Rmb3.9 billion and a 25% jump in net profit to Rmb1 billion. That represented roughly 28% of what the company made in 2018 for the full year. For comparison, Medtronic, the world’s largest medical device company, recorded annual revenue of nearly $30 billion – equivalent to Rmb206 billion – in 2018.

Founded in 1991, Mindray has gradually developed its business in three areas: life monitoring systems, in-vitro diagnostic equipment and medical imaging gear. It first caught the attention of investors such as US venture capitalist Walden International in 1999, before conducting an initial public offering in New York in 2006.

That early financing provided Mindray with funds to scale up through acquiring companies such as Zonare, a US ultrasound technology developer, and several other domestic peers. Yet it also left the company with rather depressed valuations. Its price-to-earnings ratio in the US had dropped to around 18 times the year before it went private, versus the current 49 times on ChiNext.

Following a new accounting rule that requires goodwill to be booked as an intangible asset, Mindray saw such items as a proportion of its total assets spike from 18% to 48%, rendering it ineligible to list on Shenzhen’s main board. That, however, has helped Mindray become a big fish in ChiNext’s smaller pond. The danger, Bloomberg warns, is its valuation risks getting to bubbly levels.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.