Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Mindray Medical International Limited (NYSE:MR)

Recent Stock Volatility Conference Call

December 13, 2013 08:00 AM ET

Executives

Cathy Gao – Investor Relations Contact

Alex Lung – Chief Financial Officer

May Li – President and Co-Chief Executive Officer

Cheng Minghe – Co-Chief Executive Officer and Chief Strategic Officer

Xu Hang – Chairman

Analysts

Ziyi Chen – Citigroup Global Markets Asia Ltd.

Ingrid Yin – Oppenheimer & Co., Inc.

Du Wei – Goldman, Sachs & Co.

Serena Shao – Merrill Lynch Far East Ltd.

Sean Wu – JPMorgan Securities Asia Pacific Ltd.

Jack Hu – Deutsche Bank AG

Ginny Chong – Mondrian Investment Partners Ltd.

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Mindray Medical International Limited Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session (Operator Instructions) I must advise you that this conference is being recorded today, Friday, December 13, 2013.

I would now like to hand the call over to Cathy Gao. Thank you, ma'am. Please go ahead. Cathy Gao.

Cathy Gao

Thank you. Hi, everyone, welcome to joining us on today’s conference call. For the release of PR to address investors concerns regarding the recent volatility of the company stock price and now we are available to answer the questions related to this concern.

Joining today’s call are our Chairman, Mr. Xu Hang; our independent directors, Mr. Joyce Hsu and then Mr. Ronald Ede. Also our management team will also join the call. They are Mr. Xi Ting Li, our President and the Co-CEO; Mr. Minghe Cheng, our Co-CEO and the Chief Strategic Officer; Mr. Wang Jianxin, our Chief Administrative Officer; Mr. Jie Lu, our Chief Operating Officer; Mr. Alex Lung, our Chief Financial Officer; and then Ms. May Li, our Chief Investment Officer.

As I mentioned, the purpose of this call today is to answer any questions that you may have. We will now open the lines for questions, thank you.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Thank you and our first question comes from the line of Richard Yeh of Citigroup. Please go ahead.

Ziyi Chen – Citigroup Global Markets Asia Ltd.

Thank you for taking my question. This is Ziyi Chen raising questions on behalf of Richard. And we have several questions for management. The first one is on the short-term investment, which allows investors also interested in about the nature of the short-term investment and about the return and also about what is Company's plan for the short-term investment going forward?

And also, we try to understand the operating leverage that Company could achieve going forward. As we can see that the selling expenses remain high for the Company as we understand that Company is spending on the channel expansion in the emerging markets and also in China, but what is the plan for in the future and also when we can see some operating leverages to be achieved?

And also, as we saw that impact for the anti-corruption probe is diminishing in fourth quarter according to our recent visit to China. So what is the procurement trend in hospitals in China in fourth quarter and if management could give more colors on the procurement trend, that will be much appreciated? Thank you very much

Alex Lung

Hi, this is Alex, the CFO of the company. Thank you very much for the questions. With regards to the first part of your question about short-term investments, basically short-term investment is basically the cash from our operations that has been put to Bank of China or buying the financial products from the banks, which generally earns a slightly higher interest rates than normal deposits in China. Some of the short-term investment is also being used for product like the national bond in China also.

All these short-term investments are R&D based and we paid each short-term investment in the Bank of China only. The return rate recently is ranging from about soft trend 5% and this rate changes from time to time in response to the credit market situations in China.

With regard to your second and third question, actually we have discussed it in our previous Q3 earnings call as the purpose of this call is mostly to address another issue I will probably suggest that has we setup another call in other time to talk about your second and third questions.

Ziyi Chen – Citigroup Global Markets Asia Ltd.

Yes, sure. Thank you very much.

Operator

All right, thank you. And our next question comes from the line of Ingrid Yin of Oppenheimer. Please go ahead.

Ingrid Yin – Oppenheimer & Co., Inc.

Hi, my question actually is about your correspondence with the SEC. Can you provide more details, when did that start and what is the process and what is the last correspondence you had with them?

Alex Lung

Hi Ingrid, this is Alex. Thank you very much for the questions. With regard to the equity correspondence, actually that were two rounds of communications that we had. The first one happened in around midyear of 2012 and the second one is I believe in around the first half of this year. The one that happened in 2012, the questions regarding on the review on the MD&A asset of our 20-F filing documents. And those all things previously we have been communicated, equity normally will formally ask questions to the company to address some of the questions that they have been in terms of the company’s corporate filings.

So actually since the company was listed, this is really the first batch of SEC comment in relation to our public filings and the second correspondence with the SEC actually first half of this year and the question was mostly addressed to our Annual Report F pages and there was only one letter.

Ingrid Yin – Oppenheimer & Co., Inc.

And that was the last correspondence, right?

Alex Lung

Yes, that’s right.

Ingrid Yin – Oppenheimer & Co., Inc.

Thank you.

Operator

All right thank you. And our next question comes from the line of Du Wei of Goldman Sachs. Please go ahead.

Du Wei – Goldman, Sachs & Co.

Hi, I was actually when we go through today's numbers or the issues, I think we noticed one of your long-lived assets for the 2007 which reported on the 2008 20-F and noticing that was [indiscernible] but your total asset actually is 4.7 [ph]. So I’m not sure whether or not it’s big and that’s probably why they were talking about their acquisitions. I’m not sure whether you can explain that, that was really kind of one to three years.

Du Wei – Goldman, Sachs & Co.

Hi, very quick questions. I think it’s for the CFO. I just want to somehow confirm your questions. The first life center you created now, were you referring to the total assets percentage in the long life assets versus the one in the balance sheet in 2007 or 2008?

Alex Lung

Okay. Yes, actually the long life assets exposure is a segment we’re reporting under the U.S. accounting principle. The company is obliged to present, actually the definition of it, in 2008 our presentation actually included all the current and also long-term assets included in the presentation of the long life assets, but in 2009, in our presentations we actually revised the capitalizations of these long life assets.

So what we actually see additional expenditure under the long life asset definition in our 2009 filing as well. As a result we ensured the long life asset which no longer improve the current assets or the assets and also intangible asset mix. So as a result you will see asset reduction in 2009, currently as long life asset exposure but after all, our figures only referred to exposures, refinement, but if you refer to our balance sheet actually there is no change in this effect in 2008.

May Li

Yes, this is basically the LLA appears to be different in the different year of 2011 if we are looking at 2007’s number, as tested on this front, but I guess nothing to include.

Du Wei – Goldman, Sachs & Co.

Okay, thank you.

Operator

Thank you. And our next question comes from the line of Serena Shao of Merrill Lynch, please go ahead.

Serena Shao – Merrill Lynch Far East Ltd.

I think my question has been answered, thank you.

Operator

Thank you, and our next question comes from the line of Sean Wu of JPMorgan please go ahead.

Sean Wu – JPMorgan Securities Asia Pacific Ltd.

Thank you for conducting this call. I think it's very important [indiscernible]. I just have a very quick question, some of that questions have been answer. [indiscernible] beaten like the dead horse out of your 19 facilities. So why don't you put out more picture to show people you do have facilities over there? You are producing there surgical licensing, like I said there, right, because I've never seen any one talking privately the reason I guess [indiscernible] you know what I mean, right? Can you hear me?

May Li

Hi Sean, this is May Li, I will take these questions. After initial investigations because we do have a lot of facilities, some are fully build, some are out of constructions in several locations all over China. So look into where this picture could possibly have been taken and it is under initial investigation that it is not possible in our Nanjing facility. And it is very likely, according to the time the picture was taken, the facilities under construction in Beijing second and that’s why there was no buildings visible on that piece of land. It is actually not mentioned which also shows the amount of low quality of this report.

Sean Wu – JPMorgan Securities Asia Pacific Ltd.

So could you reiterate on the loss of payment to workers. So what they are doing, function of [indiscernible], why do you have so many on incentives all with the prices of new?

May Li

Yes, we have previously actually discussed it, why we are trying to build multiple R&D locations in China. It is not just as many of multinational peers, we have already done that. Actually we have setup R&D center in Shenzhen et cetera. It has a multiple strategic levers, which are not go into details and just time limited call. But it’s largely because Shenzhen in terms of cost of living. And it’s not attractive for non-current anymore. And Shenzhen itself doesn’t produce a lot of college graduates for us to liquid form. So those are the two very big reasons for getting out R&D centers inland of China.

Sean Wu – JPMorgan Securities Asia Pacific Ltd.

Okay. I think I'm fine we do that.

May Li

What?

Sean Wu – JPMorgan Securities Asia Pacific Ltd.

Yes. Just for your information, as we talk that email from [indiscernible] inbox, so those guys are still [indiscernible] all over the place.

May Li

Okay.

Operator

All right, thank you. And our next question comes from the line of Jack Hu of Deutsche Bank. Go ahead.

Jack Hu – Deutsche Bank AG

Thank you. Actually, good evening. Thanks for taking my call and hosting this call. I think this is going to be kind of important for the time for the Company to set the record straight. Actually I do appreciate all the management member including all previous CFOs on the call. So I have over 50 questions from investors and I obviously enacted all of them and I actually, the first question is going to come from me, we ask four questions first. The first question is actually as an operator, how do you know when you go out to do acquisition, how do you know the [indiscernible] revenue and the profit are not over understated and how do you conduct a due diligence for the cash on the balance sheet to make sure it is over there? That's my first question.

May Li

Hi. Jack.

Minghe Cheng

Hi, Jack. Thank you very much. I just want to first confirm the question is that, so you're referring to under acquisition situations, the DD that we can do with regards to the cash systems?

Jack Hu – Deutsche Bank AG

No, actually is [indiscernible] revenue, profit, and the balance sheet, how do you conduct the due diligence for actually four domestic companies and the international companies?

Minghe Cheng

Okay. This is two questions actually. Well, actually for all the acquisitions that we have done whether have eventually come to good or not, actually we will carry out due diligence. In most of the time we will engaged, reputable external firms including legal and also accounting professionals. Those who actually help us to carry out – agree upon procedures, revealing the completeness of the revenue and also the equity of the profits and also to a certain extent accurate the valuation of the company’s individual assets including cash.

From the profitability standpoint, we will also engage our operation teams to review the manufacturing aspect of the target company by leveraging our manufacturing and product knowledge.

From the revenue standpoint we will also look into the cash flow situation of the company derived from the operations and to – that will reconcile whether the completeness of the revenue and also whether that irregularity of the revenue as well.

Jack Hu – Deutsche Bank AG

Thank you. And my next question actually is on the incoming AGM. Would you establish an independent committee to investigate all the comments made in this research report?

May Li

This is May. Hi, Jeff. Whether or not there is a need to set up a special committee to investigate into the so called allegations made out in this report is being indirectly reviewed by the Board Members, right. The initial findings and analysis we did into the report – later into report throughout today was that most of the activations or allegations in this report were based on [indiscernible] and a lot of the facts laid out. So it’s in LOI. And so it’s back to initial analysis that we have done. Again, whether there is a need for the Board to establish a organization or establish a passage to further looking to this report will be decided over the next few years. Thank you.

Jack Hu – Deutsche Bank AG

Thank you. The other question actually is for Chairman Xu. Has Mindray been approached by anyone in the past few years since the IPO formally or informally, including multinational companies or domestic companies?

Xu Hang

[Foreign Language]

Jack Hu – Deutsche Bank AG

Thank you. And since it’s my last question, I don’t want to take much time. My last question is on your U.S. Meditech tax. So you U.S. actually started to ask all the Meditech Company to pay U.S. to pay a tax in the form of VAT actually starting this year. My question actually to Alex is, how much did Mindray complete this year and which government agency did you make payment to and what kind of frequency, monthly basis or quarterly basis? So thank you.

Alex Lung

Hi, Jack. Thank you for the question. My understanding is we only are required to approve the tax spend. I believe we haven’t actually made the payment yet.

Jack Hu – Deutsche Bank AG

Yes. If I follow-up on this, so when will be the deadline that you have to pay the first requirement?

Alex Lung

Yes, I’m afraid I don’t have the specific date with me because I believe the legislation has change originally. The first operation should be like June this year, but I think that they have been proposed. Please forgive me. I may not be most up-to-date on this and let me get back to you when the administration is actually going to start, but I actually – go back to my first entity [ph] as my understanding is this should certainly be just accrue and I believe we haven’t made any payment for that so far.

Jack Hu – Deutsche Bank AG

And how much tax will you accrue?

Alex Lung

I don’t have the specific number with me, but the basis, it’s basically 2.3% of the revenues from the sale of device.

Jack Hu – Deutsche Bank AG

Okay. Thank you. I’ll go back in the queue.

Operator

Thank you. And our next question comes from the line of Ginny Chong of Mondrian. Please go ahead.

Ginny Chong – Mondrian Investment Partners Ltd.

Hello, Alex, Li, senior management team at Mindray. Andrew Miller and myself were here from Mondrian. We’re not assembled here and certainly not yourself leaving the evening to nearly talk about the company and some financial analysis. We are here as already questions have been brought up is to talk about the short stock move yesterday and in some ways, some of the questions that they raised give legitimacy to a report that is unsubstantiated and released from whom that the author themselves are unknown. I suppose what we’d like to here from senior management team is in address to this report, which is highly accusatory is declamatory.

It is a report that alleges fraud, financial misrepresentation, either serious allegation. What we’d like to hear is what is perhaps the statements from management in respect of this report 110 pages, is there any legitimacy to what is outlined here in this report? That would be very hopeful and contextualizing what we are here today to talk about.

May Li

Hi, Ginny. I’ll just speak on behalf of the management team present on this call. Later after this conference call we’ll like to see a formal statement by the company in which we will state how we’re positioned against this report, which is we as Mindray since by the integrity of our historical annual report and the press releases and as I mentioned earlier, we very much believe that the allegations and accusations step forth in this research report, this 110-page research report and that’s [indiscernible] and will contain numerous errors of facts, some are misleading speculations.

So I totally agree with you that this report again is low quality on many levels. Hence, we want to make sure that we firmly send back that to protect the reputation of the company and the interest of our shareholders including you, Jenny and that’s why we’ve often seen this call today and we have special force to use this representatives and the management members on the call.

Ginny Chong – Mondrian Investment Partners Ltd.

Thank you. This is Andrew here, Jenny’s colleague. Just two small follow-up questions; firstly, is there anything you can do to bring in whoever these people are to be accountable for what I feel is complete enough a nonsense and because they are clearly seeking the benefit for their own financial gain and frankly something needs to be done about this and I just want to discuss if there is anything you might be able to do?

And secondly, a more fundamental question from your side. You just recently announced significant share buyback. Would it be fair to assume that this is the opportune moment to get that into full swing business?

May Li

Yes. Well, first of all, Andrew, thank you for your support. As one of our shareholders, we do reserve all the life, okay, including legal actions against the authors involved in this research report, hence not aligned our legal team, internal and external to look into this matter and for us, you’re right. The second half is some repurchase program intake and I think at this time, talk about currency. It creates a very good opportunity for us to impact, optimize it very meaningfully.

Ginny Chong – Mondrian Investment Partners Ltd.

Thank you.

Operator

Thank you. And our next question comes from the line of [indiscernible]. Please go ahead.

Unidentified Analyst

Thank you very much for opening this call. I appreciate that. Do you really include optimum day research on and do you have any contact with the company?

Cathy Gao

No. Unfortunately we have, to my best knowledge, as I oversee the Investor Relations functions of the company, which is non-operating [ph]. We have not been approached by ultimate goal research within the company.

Unidentified Analyst

Thank you for that. And a pullout question. And what you’re asking of your barring research report. On page 15 and page 16, they have contents or gigs of two of facilities. In fact the same facility and there is an optimum player that they are different, but there are enough [Indiscernible] just looking at solid volumes in the background.

Cathy Gao

Yes.

Unidentified Analyst

Looking at solid volumes in the background…

Cathy Gao

Yes, you are right actually service side earlier during the quarter, some mid-term sales initial investigation the pictures look a lot like our new Beijing facility, which was under construction back in April, May timeframe earlier this year. Both pictures actually look a lot like our Zhonguancuan Beijing facility, which is the almost fully complete in terms of construction now. And it doesn’t look like our Nanjing facility back in April, May timeframe at all.

Unidentified Analyst

Thank you very much for that. We are looking back to growing business rather than answering the same question. Thank you.

Cathy Gao

Thank you.

Operator

Thank you. And our next question comes from the line of [indiscernible] of UBS. Please go ahead.

Unidentified Analyst

Hi, thank you very much. And just have one single question. From all our earnings goes as far as the one sides, we all anticipated that – we really take to your numbers. Just wanted to get the management Affirmations Act you could not meet the…

May Li

Hi, Alice, CFO.

Alex Lung

I would like to confirm the question, we do not need to repay that numbers.

Unidentified Analyst

Right, okay that’s all I wanted to ask…

Alex Lung

All right. Thank you.

Operator

All right. Thank you. And our next question, the last question from the line of Serena Shao of Merrill Lynch. Please go ahead.

Unidentified Analyst

Thank you. Thanks, Alex and May for conducting this call. I actually have another question which is coming from a client. So my question here is asking about your emerging market sales force [indiscernible] especially like in South America. How do you organize that, how do you manage that. And is that [indiscernible] stable in that region, I think if any information you are comfortable to provide. Thank you so much.

Alex Lung

Hi, I think there is something about this so far, any ways there was just a strange noise in the background I’ll take this last question very briefly, there is this industry and how we organize our emerging markets sales and distribution network. We have a team of what we call sales management team, and lot of them are based in China, I think and I will turn our base in respective of our country, Russia, the Europe, Mexico, Poland and wherever they are and they work with local distributors. So that’s a distribution network that covers the regions together with our distributor, sales managers. So we have the high operating under this sales structure, that’s in distribution structure ever since we had emerging market goals. It’s been like that from the last decade.

Unidentified Analyst

Okay. Thanks a lot.

May Li

Yes, okay. Thank you.

Unidentified Analyst

Thank you very much.

Operator

Thank you. And now I’ll hand the call back to the management for closing remarks.

May Li

Thank you, operator and thank you everyone for participating in today’s call. Our press release will be available on the company’s website posted with the call. As discussed, we want to reiterate that Mindray stands by the integrity of our historical annual reports and the press releases.

We believe that the allegations and accusations set forth in the research lack merit and they contain numerous errors of facts, misleading speculations and malicious interpretations of the events. Management is dedicated to protecting the firm’s reputation and the interest of our investors. We reserve our rights in this matter and we will pursue any end of means available to protect our brand reputation and value in the stock market. As always, we appreciate your support of Mindray and again thank you for joining us today.

Operator

Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Mindray Medical International's Management Presents at Recent Stock Volatility Conference (Transcript)
This Transcript
All Transcripts