At present, the medical device industry has the following investment highlights:
China's medical device industry is at acritical point of integration and development. Specialized mergers and acquisitions have cultivated segment market leaders, and comprehensive mergers and acquisitions have spawned industry giants. From the start-up stage dominated by primary health materials to the initial stage of category expansion, and then to the structural change stage driven by private capital
in the 1990s, China's medical device industry has completed the accumulation of original technology and capital and initially realized product structure adjustment and innovation. Regional industrial layout. After the start of the new medical reform in 2006, the industry ushered in a new historical period. Strategic demands for diversification, fierce industry competition, and capital strength have become catalysts for industry integration. Under the joint action of the industry's endogenous characteristics and external environment, the degree of concentration has increased and the trend of diversified development has formed. Chinese local medical device companies will promote the concentration of the industry through mergers and acquisitions. In the process of comprehensive and professional development, more market leaders will emergeand future industry giants will emerge.
Strategic positioning determines future development, and companies that are first to expand are expected to become industry giants. During the period of integrated development, Chinese medical device companies will face three options for development: 1) focus on market segments and become leaders in segments; 2) expand through mergers and acquisitions to become a comprehensive giant; 3) use technological advantages to achieve medical and electrical integration. Both focus and diversification are indispensable, and we believe that companies with diversified development and active integration and expansion are more likely to be winners. Mindray Medical, Weigao, Yuyue Medical, and Lepu Medical have diversified through joint ventures and mergers and acquisitions and have become leaders in integration. Minimally Invasive Medical, Kanghui Medical, Trauson Medical, Jiu'an Medical,Yangpu Medical, and Xinhua Medical are the leaders in the subdivided fields.Although Wandong Medical only focuses on one subdivided field, it bears the expectation of China Resources Group on the development of the medical device industry.
With the general trend of industrial upgrading, China's medical device industry is moving from traditional manufacturing to high-tech development. Manufacturing and processing are the foundation of the development of China's medical device industry. After accumulation, a complete product system has been established, and it has established a pivotal position in the field of low-end products. China's medical devices are actively upgrading their technology to strive for opportunities in the domestic demand market and external industry transfer. The improvement of product quality and technical structure has enabled Chinese enterprises to achieve remarkable results in the fields of monitoring, medical imaging equipment, clinical laboratory equipment and minimally invasive interventional therapy. The general trend of innovation and development is irreversible, and computerized tomography, nuclear magnetic resonance, electro-cardio physiological instruments, artificial joints, etc. will be the commanding heights occupied in the next step.
China's medical device market has great potential and will maintain rapid growth. The global medical device industry isgrowing faster than the pharmaceutical market and will maintain a compound growth rate of 10%-15% in the future. Although, developed countries account for 78% of the market share, developing countries represented by China are experiencing rapid growth, relying on cost advantages and R&D accumulation to improve their status in the industrial chain. Increasing medical expenses,increasing consumption power and health awareness will be positive factors to promote the development of the industry. The reform of the medical and health system will inject additional impetus into the development of the industry and become an inducing force to release pent-up demand and open up potential space in the future. Internal and external forces such as resource allocation rebalancing, upgrading and industrial transfer are intertwined, and the compound growth rate of China's medical device industry will remain at 20%-30%.
Industry Risks:
1) Economic recession and cuts in fiscal spending may dampen demand in the high-end export market; 2) Appreciation of the renminbi weakens the global competitiveness of Chinese-made products; 3) The production and sales of medical devices are strictly regulated in various countries, and policy changes may significantly increase the profitability of manufacturing companies. Cost; 4) The accelerated entry of large foreign medical device companies into the Chinese market and the intensified competition from domestic brands may depress industry profits.
Good sales but worrying profit margins
Large medical device companies will benefit from the new version of GMP and the expansion of infrastructure. Medium- tolong-term growth prospects of Xinhua Medical and Tofflon for large medical device companies due to increasing industry standards in China and growing demand for cost-effective production equipment from global generic drug manufacturers, especially Indian pharmaceutical companies, are both optimistic. We reiterate our positive view on Xinhua Medical, as the company's earnings are expected to achieve a strong growth of 96.8% in 2011 after the implementationof the new version of GMP. In addition, with strong R&D capabilities, thecompany will continue to launch new products and services (the operating roomas a whole solution).
Cost and speed are critical in the medical consumables market. We believe domestic players have the potential to take market share from MNCs. Domestic manufacturers are moving up the industry chainby focusing on high-margin products (such as shifting from traditional syringes to prefilled syringes). Companies such as Trauson and Minimally Invasive are trying to break into the joint (knee and hip) device market by offering a range of products rather than a single product to remain competitive in tenders. However, due to the poor reputation of product quality, there are still doubts about whether the market can accept domestic joint products.
The market expects strong volume growth, but margin pressure is a new concern: get ready for tenders in 2H11 first. The companies we surveyed are generally positive about the long-term growth potential of China's medical device industry because most companies believe that sales demand will remain strong in the next 2-3 years, with an average annual compound growth rate of 25-30%. But the uncertainty of tendering (provincial policy differs from central policy) is the main policy pressure on industry margins. Companies we surveyed indicated that China may begin provincial-level bidding for high-end medical devices and consumables in the second half of 2011 to control overall medical costs, as the government believes that regional bidding prices are better managed than the central government and are easier to monitor. Many newly developed products are waiting to enter the scope of the pre-launch tender, and companies expect price reductions in the next round of tenders.