Mindray's 2008 Fails to Please Investors

| About: Mindray Medical (MR)

Mindray Medical (NYSE: MR), the Shenzhen-based medical device maker, reported positive results for its Q4 and full-year 2008. Revenues climbed to $547.4 million, which represented a 61% increase in China and a 110% improvement in international markets. Non-GAAP income rose 50% to $132.7 million.

A major part of the improvement can be traced to Mindray’s $202 million acquisition of the patient monitoring division of Datascope (NSDQ: DSCP), which closed on May 1, 2008. Over the eight months the assets were part of Mindray, they added about $100 million to Mindray’s top line.

Although Mindray’s numbers were healthy, investors seemed unhappy that the company’s overall business did not grow more rapidly. Following the earnings announcement, Mindray’s shares declined 11% in mid-session trading, dropping $2.25 to $18.20. Over the past 12 months, Mindray has traded in a range from $12.31 to $44.41. At its present price, the company has a market capitalization of close to $2 billion, but investors’ skepticism is evident in the company rather anemic Price/Earnings ratio of 10, based on trailing 12-month results. The company ended 2008 with $253 million in cash.

While releasing its 2008 results, Mindray also issued guidance for 2009, calling for at least a 20% gain in revenue. Because the Datascope assets will belong to Mindray for all of 2009, instead of just eight months as they were in 2008, the acquisition should be responsible for almost half the increase.

Mindray said its fourth quarter was also strong, generating $40 million in cash flow. Net revenues moved 84% higher to $167.9 million, while non-GAAP net income rose 43% to $36.2 million. Mindray did not address the issue of why net income did not keep pace with the growth in revenues. No single item seemed to stand out as expenses rose in almost all categories, except for R&D and taxes.

Looking at Mindray’s three product segments in Q4:

  • Patient Monitoring & Life Support Products produced the biggest advance, profiting from the Datascope acquisition. They were up 151% at $77.9 million, which comprised 47% of total revenue.
  • In-Vitro Diagnostic Products rose 34% to $36.4 million, or 22% of total revenues.
  • Medical Imaging Systems revenues jumped 41% to $42.6 million, 26% of the company’s revenues.

The company introduced ten new products in 2008, across its three product divisions. It received FDA 510(k) clearance for nine new products.

Disclosure: none.