Mindray Medical Beats Street, Raises Forecast for Full-Year 2007

Mindray Medical (MR), based in Shenzhen but listed on the NYSE, reported second-quarter earnings per share that were 20% above analysts estimates. Its net for the period represented a 69% increase over the year-earlier quarter, with sales to international markets leading the surge.

In response to the better than expected report, management raised its forecast slightly for full-year net income to 615 million RMB ($85 million), an increase of approximately 20 million RMB (the numbers are non-GAAP net). The new estimate is about 50% above last year’s results. Because Mindray is running more than 50% ahead of 2006, the guidance remains conservative.

Investors liked the positive report, sending the stock to an all-time high. After the announcement, the stock gained 14%, rising $4.19 to close at $35.17. Mindray made its IPO on the NYSE at $13 per share in September 2006, so the company is very close to a triple in the ten and one-half months it has been a public company. During the second quarter, revenues came in at 561.5 million RMB ($73.8 million), representing a 57% increase over the year-earlier quarter. International revenues were up 74%, while domestic Chinese revenues climbed 42%.

Mindray recorded non-GAAP income that was 69% higher at 174.9 million RMB ($23 million), while the GAAP numbers were only slightly lower at 156.5 million RMB ($20.6 million). The latter number reflects a net margin of 28%. In a release, Li Xiting, President and Co-Chief Executive Officer, said that North American sales of patient monitors and ultrasound systems more than doubled. He also noted that the FDA approved Mindray’s BC-3200 three-part differential hematology analyzer during the quarter, the first Mindray diagnostic product to win FDA approval. Across all of its divisions, Mindray now has 10 FDA approved products.

Mindray operates in three segments: patient monitoring devices (36% of revenue), diagnostic laboratory instruments (30%), and ultrasound imaging systems (34%). Mindray is expanding its imaging system portfolio by developing digital radiography systems, which replace conventional film-based X-rays. The company has submitted a system to the SFDA in China, and it expects to launch the device in 2008.

The company reported that it expects to increase its international sales headcount to more than 200 people by the end of 2007, opening offices in Amsterdam, Mexico City, Moscow, Sao Paulo and Toronto.

In the second quarter, income taxes represented 14% of revenues, as Mindray is paying under the 15% rate that was given to new enterprises. Under the new single-rate tax law in China, that 15% rate will be available only to high-tech enterprises, and Mindray assumes it is eligible, though it must see the final set of rules for confirmation. Otherwise, the tax rate will jump to 25%.

Mindray Medical had 1,619.8 million RMB ($212.8 million) in cash on hand at the end of the quarter. It employed 3,260 people, up from 2,740 at the beginning of the year.

The two co-CEOs of Mindray, Xu Hang and Li Xiting, have begun the process of divesting themselves of a portion of their Mindray stock. They entered a variable pre-paid forward contract with UBS Securities LLC, under which Mr. Xu will pledge two million ADSs to UBS. These shares are 9.0% of his current shareholdings and about 1.9% of the outstanding shares of the company. Li’s shares represent 5.5% of his holdings and approximately 0.9% of the outstanding shares.

Disclosure: none.