MR Montage Resources Corporation

We initiate our coverage on Mindray Medical International Limited (MR) with a Neutral rating.

This leading Chinese medical devices company is a bellwether in the Chinese MedTech industry with a solid international presence. It operates in three segments: Patient Monitoring, In-vitro Diagnostics and Medical Imaging. 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’s first-quarter 2011 earnings per share of 32 cents missed the Zacks Consensus Estimate by a couple of cents. The company generated total revenues of $180.9 million in the quarter, up 24% year over year, of which domestic sales contributed $72.5 million.

Mindray has a large sales infrastructure in China, which gives it better access to small and medium-sized hospitals. Through the acquisition of Datascope in 2008, Mindray obtained a direct sales and service infrastructure in the U.S. and Europe.

In China, Mindray beats other multinationals on price and defeats local players, with their cheaper products, on brand recognition. In western markets, the company targets mid-market, price-sensitive customers.

Mindray maintains a decent product pipeline and brings out several new products each year. The company plans to bring to market 7 to 10 new products in fiscal 2011 after introducing several new products in fiscal 2010. 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. The company expects Chinese government tender sales to be a smaller portion of its domestic revenues.

Mindray’s competitors, in different niche segments, include General Electric (GE), Philips (PHG) and Siemens (SI). Our long-term Neutral rating on the stock is supported by a short-term Zacks #3 Rank.

 
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