In less than three years since its home debut, Shenzhen Mindray Bio-Medical Electronics has handed stock investors greater returns than all the largest companies traded on the Shanghai and Shenzhen exchanges bar two.
The stock’s 992 per cent total return from mid-October 2018, in US dollar terms, easily surpassed the CSI 300 Index by more than 10 times, based on data through June 4. Only a dozen companies with at least US$20 billion of market capitalisation, such as Tesla and Singapore-based Sea Ltd, have performed better on the global stage over the period.
As China’s health care industry enters its “golden decade”, its 70-year-old billionaire founder Li Xiting has pledged to deliver more to expand its global footprint. Research spending and overseas mergers and acquisitions will be its twin planks to take on the world’s biggest players in the health care industry.
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“Medical equipment needs replacement and upgrading, so the demand is not a problem [even after the pandemic] because many new hospitals are being built globally and many others are expanding their sizes,” founder and chairman Li Xiting said in an interview with the Post . “A double-digit growth in sales and profits can be sustained at least over the next three years.”
That would be sweet news for money managers at JPMorgan Chase, BlackRock and others at onshore fund houses, who rode the stock’s more than doubling in capitalisation to US$92 billion from the depth of the Covid-19 pandemic in March 2020. In the past 12 months alone, the stock generated US$3.8 billion of wealth per month for shareholders.
The billionaire expects a very favourable growth in sales this year of as much as 20 per cent, despite the higher base during the pandemic last year. They grew 27 per cent in 2020 and 20 per cent in 2019. China is speeding up the construction of more hospitals, allocating billions to upgrade intensive-care unit facilities to usher the industry into a “golden age in the next 10 years,” he added.
Shenzhen Mindray, which provides health care technologies and devices such as ventilators to many hospitals in mainland China, is the local exchange’s third-biggest company by market value, behind only liquor distiller Wuliangye Yibin and battery maker Contemporary Amperex.
Li, whose 31 per cent stake underpins his US$27 billion fortune and his Bloomberg ranking as the richest in his adopted country Singapore, wants to turn it into one of the world’s top three players over time.
“Our first goal is to become one of the top 20 in five to 10 years, the second goal is to reach the top 10, and then the top five or top three over the longer term,” he said. “The long-term goals and their timelines depend on many factors.”
“We hope to purchase some technologies in developed countries, which is key to making up for [our current weakness].”
For a start, the firm is spending €545 million (US$663 million) of its US$2.5 billion cash and cash equivalent to buy out its long-time partner HyTest Oy, a Turku, Finland-based producer of testing reagents materials and a global leader in raw materials of in-vitro diagnostics.
Emerging markets in South America, Asia-Pacific, Middle East and Africa are important growth outlets for Mindray, Li said, as markets in the US and western Europe are considered “relatively saturated.” That will help its upstream expansion, China Renaissance Securities said.
“The company’s independent research and development strategy has achieved outstanding results,” analysts including Helena Wang at Changjiang Securities said in a report in April. “Its core products have gone from filling domestic gaps to leading the world.”
The analysts forecast a 20 per cent increase in earnings this year to 7.87 billion yuan (US$1.2 billion) and a 22 per cent jump in 2022 to 9.6 billion yuan.
At home, the stars appear to be aligned in Shenzhen Mindray’s favour. China is advocating the use of devices produced by local manufacturers, targeting 95 per cent self-sufficiency in mid-to-high level devices in country-level hospitals by 2030 under the nation’s import substitution drive.
Even before Covid-19, China lacked adequately widespread diagnostics and health care facilities, and had shortages of broad-based vaccinations for illnesses such as the regular flu, according to JPMorgan Asset Management. As consumer expectations continue to rise, a focus on improving health care spending in China remains a clear structural trend for investors, especially in areas like outsourced clinical testing, diagnostics, and vaccinations.
“The pandemic has shone a light on under-investment in hospitals where ICU beds represent just 5 per cent of hospital beds vs 15 per cent-plus in developed markets,” said Rebecca Jiang, who co-manages the US$7.9 billion A-Share Opportunities Fund, which owns the stock. “This provides structural growth for companies such as Shenzhen Mindray which manufactures medical equipment which has been increasingly successful in export markets.”
Among analysts tracked by Bloomberg, all 34 have buy, overweight or outperform recommendations on the stock. The market consensus 12-month price target is 536.63 yuan, implying about 11 per cent upside from its last-traded price of 484.20 yuan on Friday.
China Renaissance raised its price target to 573.16 yuan given its strong performance in the first quarter. With a better global coverage network and brand recognition, “Mindray should be able to maintain strong growth across all its business segments,” analysts led by Zhao Bing said in a May 17 report.
Although the stock valuation is higher than peers at 62 times estimated profits, there is room for price-earnings multiple to grow given its strong pipeline and growth prospects, they added.
Still, investors will have to keep loading up Mindray’s A shares in Shenzhen to enjoy its next growth spurt. A second listing in Hong Kong will be a distraction to management, Li said. In other words, the plan is not on the drawing board. It delisted from New York in 2016.
Shenzhen Mindray has paid 6 billion yuan of dividends to stockholders, according to Li, more than the 5.75 billion yuan it raised from its flotation on the Shenzhen exchange in October 2018.
“So we have paid the money back to stockholders,” he said. “A dual listing means we need to have two sets of information disclosure, which will slow down management. Listing is for raising funds and we don’t need it now. We might consider when it’s needed in the future.”
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