From a small agency company to an industry giant with independent research and development, what exactly has Mindray Medical done? Beike Investment Research (ID: Beiketouyan) found that Mindray once burned a lot of money due to the research and development of high-end medical equipment. Although it made a lot of money, it was not enough to burn, and the capital chain was tight, and Mindray was finished. However, things turned around in the end, and in 1997, venture capital Walden International was introduced to start dealing with capital. Next, the success of independently developed products and the strategy of focusing on cost-effectiveness opened up sales for Mindray. In 2006, Mindray successfully listed on the New York Stock Exchange and became China's first overseas listed medical equipment company.
Seeing this, do you think that the success of Hengrui Pharmaceutical is similar to that of another billionaire giant, Hengrui Medicine, which also insists on independent research and development, but one is making medical equipment and the other is making innovative drugs. So, what exactly does Mindray Medical rely on to grow bigger and bigger?
1. Domestic leader in medical devices, three major business areas continue to grow steadily
Shenzhen Mindray Biomedical Electronics Co., Ltd. was founded in 1991 and provides medical device products to the global market. It is the well-deserved leader in domestic medical devices and the world's leading supplier of medical equipment and solutions. It currently accounts for about 8% of the domestic market share, 3rd in the world, and 3rd in Asia. It ranks first in the domestic market for monitors with a market share of 65%, ranks third in the domestic color ultrasound market, and ranks among the top five in hematology and biochemical diagnostic products. Its products cover nearly 110,000 medical institutions in China. institutions and more than 99 tertiary hospitals.
The company focuses on its main business and has achieved gratifying results in the three major business areas of life information and support, in vitro diagnosis and medical imaging, maintaining a healthy and good growth trend. Among them, the life information and support business achieved operating income of 6.341 billion yuan in 2019, a year-on-year increase of 21.38%; the in vitro diagnostic business achieved operating income of 5.814 billion yuan, a year-on-year increase of 25.69%; the medical imaging business achieved operating income of 4.039 billion yuan, a year-on-year increase of 1.23%. The revenue proportions of these three major businesses reached 38.3, 35.1, and 24.4 respectively, and the profit proportions reached 38.5, 33.7, and 25.6 respectively.
2. Focus on R&D and build a high moat
In the view of Beike Investment Research (ID: Beiketouyan), what really brings about the moat is undoubtedly technology and products, while the lower level is It's R&D. In the past three years, the number of Mindray Medical R&D personnel has increased from 1,764 to 2,508 in 2019. At the same time, R&D expenditures continue to increase. While revenue continues to grow, the proportion of R&D investment has always remained at around 10%, which is a relatively high level in the domestic industry. Among them, the company's total R&D expenditure in 2019 was 1.466 billion yuan, a year-on-year increase of 15.7%. In the past three years, Mindray Medical’s R&D investment has averaged nearly 10%.
The moat effect brought by patents and the product barriers established will ultimately bring about positive chain reactions. As of the end of 2019, the company has applied for 4,873 patents and has authorized 2,130 patents, taking a leading position in China's medical device industry. Research and development has brought improvements in profitability and market position. In the past five years, the company's gross profit margin has always remained above 60%, and the net profit margin has increased from 11.7% in 2015 to 28.3% in 2019.
3. Purebred high-quality growth "cows", sustainable development
Profitability has brought continuous improvement in cash flow. The cash flow generated by Mindray Medical's operating activities in 2019 The net amount was 4.72 billion yuan, a year-on-year increase of 17.03%, and the company's operating net cash flow has been higher than its net profit in recent years. Abundant cash flow further nourishes product production and research and development, and ultimately forms a healthy operation, constantly pushing Mindray Medical forward. In 2019, the company achieved operating income of 16.556 billion yuan, a year-on-year increase of 20.38%; net profit attributable to the parent company was 4.681 billion yuan, a year-on-year increase of 25.85%.
Under the epidemic, Mindray Medical bucked the trend and achieved "double pre-increase" in revenue and net profit.
In addition, the company's cash inflow from operating activities is greater than the sum of investment cash outflow and financing cash outflow, and is "sustainable". According to Beike Investment Research (ID: Beiketouyan), the company continues to expand by relying on the money it earns, while also reducing debt and paying dividends. It is a typical dairy-type enterprise. Not only do they eat grass and squeeze out milk, but the "cows" continue to grow, and their milk production capacity is expected to be further improved. Mindray Medical is an absolute purebred high-quality growth cow.
4. Summary
Why can Mindray Medical find a path? That's because Mindray insists on going its own way. "You fight your price war, I'll do my R&D and production, and we'll see who is the winner in the end." The rapid development of Mindray Medical is inseparable from the two core factors of the import substitution strategy of "surrounding the cities from the countryside" and mergers and acquisitions. It also promoted Mindray Medical to move from low-end to mid-to-high-end products, achieving double growth in sales and profits. It can be said that the reason why Mindray Medical has become the industry leader is due to its previous accumulation, global layout, localized operations, and R&D technological achievements. (ty001)