MINDRAY(300760)：FIRMLY IMPLEMENT THE GLOBALIZATION STRATEGY-格隆汇

机构：招银国际
研究员：Jill WU/Cathy WANG

　　Bloomberg reported (15 Apr) that the European Union is set to launch an IPI investigation into China’s procurement of medical devices, seeking to address concerns about the policy’s unfair favouritism towards domestic suppliers in China. According to anonymous sources, the investigation could be announced as early as mid-April and may result in restricting Chinese companies’ access to tenders in the EU. In May 2023, the US-European Union Trade and Technology Council (TTC) issued a statement indicating that the US and EU were exploring possible coordinated actions to address China’s non-market policies and practices.
　　The International Procurement Instrument (IPI) regulation acts as a new tool to tackle market protection in public procurement by third countries. Under the IPI, the European Commission can initiate an investigation into a non-EU country’s practice if it recurrently undermines EU companies’ access to its procurement market. Upon initiation, the Commission will invite the third country concerned to enter into consultations and seek to eliminate or remedy any restrictive practices. The investigation can be suspended at any time if the third country takes satisfactory corrective actions. Otherwise, the European Commission will adopt an IPI measure in the form of a score adjustment or an exclusion of tenders. The IPI measure applies to procurement contracts of at least EUR15mn for works and concessions, and EUR5mn for goods and services, which expires after 5 years but may be extended for a further 5 years.
　　The IPI regulation allows room for mediation. China is an important market for global medical device players. Revenue from China accounted for 13% of Siemens Healthineers’ total revenue in FY23. Moreover, a majority of medical device MNCs have established factories in China and complied with the identity of domestically-produced medical devices which enables them to access to China’s government procurements. Therefore, we believe that the primary objective of the IPI investigation is to foster reciprocal access to international markets, rather than incurring losses for both parties involved. Given that the investigation can extend up to nine months, or even 14 months under justifiable circumstances, there remains a degree of uncertainty surrounding the outcome of the IPI process.
　　Limited impact on Mindray’s business. Mindray’s revenue from Europe accounted for 5.9% of its total revenue in 1H23, which is relatively modest. Additionally, Mindray does not hold any individual EU tenders with contract values exceeding EUR5mn. Furthermore, markets outside of Europe and America account for a significant portion of global medical device demand; for instance, Siemens Healthineers' revenue from regions outside the US and EMEA constituted 33% of its total revenue in FY23. Consequently, we believe that there is considerable potential for Mindray to further expand its business in markets beyond America and Europe.
　　Maintain BUY. We maintain our TP of RMB383.43 based on a 9-year DCF model (WACC: 9.0%, terminal growth rate: 3.0%).