In 2023, Mindray's revenue growth rate will drop to 15% for the first time, which is the first time that its revenue growth rate has fallen below 20% since 2017. In the first quarter of 2024, it fell further to 12.06%.
1-Revenue growth slowed down
Not long ago, Mindray Medical, a leading domestic medical device company, released its 2023 annual report and 2024 first quarter report. According to the annual report, in 2023, Mindray Medical will achieve operating income of 34.932 billion yuan, a year-on-year increase of 15.04%; The net profit attributable to the parent company was 11.582 billion yuan, a year-on-year increase of 20.56%, which is also the first time that Mindray Medical's net profit exceeded the 10 billion mark.
Since its listing in 2018, Mindray has continued to maintain a stable performance comparable to that of Moutai. According to the data, from 2018 to 2022, Mindray Medical's revenue growth rate and net profit growth rate have maintained a double 20%+ performance, which is also known as "medical equipment Mao" by investors. Until 2023, Mindray's revenue growth rate will drop to 15% for the first time, which is also the first time that the company's revenue growth rate has fallen below 20% since 2017.
In terms of revenue composition, Mindray's main business is divided into three parts: life information and support, in vitro diagnostics and medical imaging. For the whole year of 2023, the company's life information and support business achieved operating income of 15.252 billion yuan, a year-on-year increase of 13.81%, accounting for 43.66% of revenue; The in vitro diagnostic business achieved operating income of 12.421 billion yuan, a year-on-year increase of 21.12%; The medical imaging business achieved operating income of about 7.034 billion yuan, a year-on-year increase of 8.82%.
It is not difficult to see that the revenue growth rate of Mindray's largest business, life information and support business, is less than 15%, which has become a key factor in the company's revenue decline. In this regard, Mindray Medical said at the performance communication meeting that in the first half of 2023, the new medical infrastructure activities led by the expansion of ICU wards have brought a significant boost to the production line, but the postponement of bidding activities caused by the rectification of the medical field since August has had an impact on the production line, and the suspension of the issuance of special medical bonds in the fourth quarter has also affected the promotion of some new medical infrastructure projects, making the growth of the life information and support production line weaker in the second half of the year.
In July 2023, the anti-corruption storm, known as "the strongest in history", swept through the entire pharmaceutical industry. According to the website of the Central Commission for Discipline Inspection and the State Supervision Commission, the rebate for a linear accelerator is as high as 16 million yuan, and the amount of corruption is shocking, which also makes the medical device industry in which Mindray Medical is located a hard-hit area.
In addition to the basic business of life information and support business, Mindray's medical imaging business has also been affected by the medical anti-corruption policy, and its revenue growth rate is only 8.82%, the lowest growth rate among the three major segments. In this regard, Mindray Medical believes in the performance communication meeting that the rectification of the medical field that began in August last year has also caused the bidding activities of ultrasound to be postponed, resulting in a slowdown in the growth of medical imaging production lines in the second half of the year. In the international market, the prosperity of the company's low-end ultrasound procurement demand continued to be impacted by the overall macroeconomic downturn.
In contrast, Mindray's in vitro diagnostic business has not been affected by the external environment, and its revenue growth rate has remained at the level of 20%+, which is also the third consecutive year that the business has maintained a growth rate of more than 20%. In terms of revenue ratio, in vitro diagnostics will account for 35.56% of Mindray's total revenue in 2023, which has become the second curve to promote the company's performance growth.
2-Net profit exceeded 10 billion
Although the company's revenue growth has slowed down to a certain extent, Mindray's net profit growth rate still remains at a level of more than 20%, which is mainly due to the improvement of the company's gross profit margin. According to the annual report, for the whole year of 2023, Mindray Medical's gross sales margin will be 66.16%, an increase of 2.03 percentage points from the previous year and a new high in the past five years, ensuring the steady growth of the company's profits.
In terms of business, the gross profit margin of Mindray Medical's life information and support products was 66.78%, an increase of 0.45 percentage points year-on-year, the gross profit margin of in vitro diagnostic products was 64.3%, an increase of 3.95 percentage points year-on-year, and the gross profit margin of medical imaging products was 69.1%, an increase of 2.7 percentage points year-on-year.
It is not difficult to see that the gross profit margin of Mindray's three major businesses has increased year-on-year. In this regard, Mindray Medical said in the performance communication meeting that the increase in the gross profit margin of the company's in vitro diagnostic production line was mainly due to the significant recovery of domestic routine diagnosis and treatment volume last year compared with 2022 compared with 2022, so the proportion of reagent revenue increased. In terms of medical imaging, although the routine procurement of ultrasound in China slowed down in the second half of last year, high-end models performed well at home and abroad, thus promoting the gross profit margin of medical imaging production lines.
Since 2019, the centralized procurement policy has become a sword of Damocles hanging over the heads of medical device manufacturers. However, judging from the gross profit margin trend of Mindray Medical, the company's overall profitability has not really been affected by the centralized procurement policy. According to the data, from 2019 to 2023, Mindray's gross profit margin has always remained around 65%, and the gross profit margin of 66.16% in 2023 is the highest level in the past five years.
In fact, there has always been a saying in the medical industry that "medicine is not as good as machinery". On the one hand, in terms of R&D difficulty, the R&D of innovative drugs surpasses most medical devices in terms of time consumption and capital investment. On the other hand, the conversion cost of medical devices is high, and pharmaceutical products are vulnerable to the impact of disruptive drugs. In addition, medical device products need to be standardized and large-scale production, with a certain scale effect. Therefore, once a medical device manufacturer has established a market position, it is easier to maintain a long-term competitive advantage.
According to the data of the first quarterly report released on the same day as the 2023 annual report, from January to March 2024, Mindray Medical achieved operating income of 9.373 billion yuan, a year-on-year increase of 12.06%, and continued to fall below 20%; The net profit attributable to the parent company was 3.160 billion yuan, a year-on-year increase of 22.90%. Compared with the 2023 annual results, Mindray Medical's revenue growth has slowed down further, while its net profit has still maintained a 20%+ growth.
But in the long run, a company's revenue growth is far more reliable than profit growth, because profit growth is relatively easy to adjust, and revenue growth is the fundamental source of the company's performance growth. Therefore, although Mindray Medical's profit side has maintained stable growth, many investors are still concerned about the company's declining revenue growth.
In Mindray's view, the decline in the company's revenue growth in the first quarter is mainly related to the high base of the domestic market last year. Especially under the influence of the new crown epidemic, the domestic ICU emergency procurement demand in the first quarter of last year far exceeded the demand for other conventional procurement, resulting in the domestic market as a whole in the first quarter of this year only achieving single-digit growth under the condition of a high base.
Mindray Medical said at the performance communication meeting that since the beginning of this year, the rectification of the domestic medical field has gradually become normalized, and the bidding activities of domestic public hospitals are expected to be better in the second half of this year than in the first half of the year. At the same time, the medical equipment renewal project is expected to contribute from the second half of the year. As a result, the company remains confident that it will achieve its full-year growth targets.
3- Overseas mergers and acquisitions are accelerating
Despite the sluggish domestic market demand, Mindray's performance in overseas markets is acceptable. In the first quarter of this year, Mindray's international market grew by nearly 30%, of which developing countries grew by more than 30%, and the three major international production lines all achieved rapid growth.
Since 2008, Mindray has embarked on a global M&A path. Through the acquisition of high-quality assets such as Datascope Life Information and Support Business in the United States and ARTEMA, a well-known brand in the field of respiratory gas monitoring in Sweden, Mindray has not only expanded the overseas life monitoring business market, but also acquired corresponding key technologies.
Since 2018, Mindray has significantly accelerated its expansion in overseas markets after landing on the A-share market. In 2020, Mindray achieved a breakthrough of more than 700 high-end blank hospitals in the global market, accounting for 47% of overseas revenue, but the market share of more than 20 products it has deployed in the overall global accessible market is still only in single digits. To this end, Mindray has set a goal of increasing the proportion of overseas business revenue to 70%.
In 2021, Mindray acquired HyTest Biotech, a world-renowned company in the field of IVD raw materials, to achieve independent and controllable core technologies in the field of IVD raw materials, and to start the R&D and achievement transformation of new projects based on the acquired technologies in the field of in vitro diagnostics business.
On November 30, 2023, Mindray Medical completed the acquisition of 75% of the equity of DiaSys Diagnostic Systems GmbH (hereinafter referred to as "DiaSys" or "Desay Diagnostics") in cash, and DiaSys officially became a holding subsidiary of Mindray. According to the data, DiaSys was founded in 1991 and is headquartered in Holzheim, Germany. As a world-renowned brand of in vitro diagnostics, DiaSys has been deeply involved in the field of biochemical reagents, quality controls and calibrators for more than 30 years, and has production facilities in Europe, Asia Pacific and Latin America.
According to the annual report, in 2023, Mindray Medical's overseas market sales revenue reached 13.550 billion yuan, a year-on-year increase of 15.83%. Among them, developing countries have grown by more than 20% for the whole year, and Mexico, Brazil, Indonesia, Turkey and other countries have achieved rapid growth. The North American market continued to achieve solid growth on the basis of high growth in 2022, with a two-year compound growth rate of 18%.
According to the latest research report of Galaxy Securities, it can be seen from the growth experience of international leading medical equipment companies such as Medtronic and Abbott that the growth of global device giants is inseparable from technological innovation and strategic mergers and acquisitions, while actively expanding global sales and channel networks, and ultimately strengthening brand influence and continuous improvement of global market share. Mindray's previous M&A ideas are in line with its own strategic development direction, which has certain similarities with the past development experience of global industry leaders, and there is still a lot of room for growth in the future.
However, the continuous extension of acquisitions has also exposed Mindray Medical to a certain amount of goodwill impairment risk. As of the end of 2023, the goodwill of Mindray Medical's accounts has reached RMB5.062 billion, an increase of 3.6 times compared with the same period in 2020, and the pressure of goodwill impairment should not be underestimated.
In addition, as Chinese medical device companies have been actively expanding overseas markets in recent years, policy risks have also added new uncertainties to Mindray's expansion into overseas markets. According to media reports, the EU has launched an investigation into Chinese medical devices, which mentions the use of international procurement tools (IPI) for Chinese medical devices to participate in EU procurement, in which goods and services with a tender procurement amount of more than 5 million euros will be affected to a certain extent.
In response to this problem, Mindray admitted in the performance communication meeting that the ever-changing international environment may be the long-term development trend of the company, and Mindray has the confidence and ability to do a good job in international business. First of all, the vast majority of governments and medical institutions around the world aspire to improve the quality and efficiency of medical care and reduce costs, and the quality and cost advantages brought by China's strong engineering capabilities will exist for a long time in the future. Second, after more than 20 years of overseas business development, Mindray has cultivated a set of relatively mature organizational capabilities. Through a combination of internal and external methods, the company expects to start at least 10 overseas localized production by the end of this year, which is of great significance for accelerating Mindray's breakthrough in overseas public markets and medium and large sample size customers.
According to the latest data, in 2022, Mindray ranked 27th among global medical device companies, up 4 places from 2021 and 9 places from 36th in 2020. There is reason to believe that as a leading medical device company with the most complete products and the strongest sales strength in China, it is only a matter of time before Mindray Medical enters the global top 20 medical device list, and can even attack the top 10 or even higher industry status in the world.
The future is bright, but the road is bound to be tortuous.
Source: Stone Business Review