Mindray reported 9M24 revenue of RMB29.5bn, up by 8.0% YoY. Attributable net profit increased by 8.2% YoY to RMB10.6bn. Revenue in 3Q24 grew by 1.4% YoY to RMB9.0bn while attributable net profit decreased by 9.3% YoY to RMB3.1bn. The slowdown in revenue growth can primarily be attributed to lackluster procurement activities in domestic public hospitals and weakened demand for IVD testing, particularly in lower-tier hospitals. Consequently, Mindray's domestic revenue fell by 9.7% YoY in 3Q24. Additionally, GPM in 3Q24 decreased by 4.8pcts QoQ due to updates in accounting guidelines.

Domestic market remained under pressure, although signs of recovery in procurement are emerging. 1) IVD: Domestic revenue grew by 17% YoY in 9M24. Nationwide DRG implementation had a negative impact on the diagnosis demand in lower-tier hospitals which were the main contributors to Mindray's domestic IVD revenue. To counter act this, Mindray actively expanded its IVD business into top hospitals through its TLA and IT solutions. We expect Mindray to install over 150 TLAs in 2024E. 2) MIS: Domestic revenue grew by over 10% YoY in 9M24 driven by the strong volume ramp- up of ultra-high-end Resona A20 ultrasound system. 3) PMLS: Domestic revenue decreased by 28% YoY in 9M24. The decline was influenced by constrained hospital funding amid a challenging macroeconomic environment. However, with accelerated issuance of special bonds, and stronger government support to address local debt issues, we expect domestic equipment demand to recover in 2025E.

Healthy growth in overseas business. In 3Q24, Mindray’s overseas revenue increased by 18.6% YoY with strong performances in Europe (+29% YoY), APAC (+32% YoY) and LatAm (+25% YoY), although there was some weakness in the US market. Driven by breakthroughs in medium-to-large volume labs, Mindray’s overseas IVD revenue increased by 32% YoY in 9M24, accounting for 28% of total overseas revenue. Mindray has accelerated its overseas localization efforts. As of 3Q24, Mindray launched local manufacturing in 9 countries, 8 of which are related to IVD. Additionally, emerging businesses such as minimally invasive surgery (+50+% YoY), AED (+50+% YoY) and animal medical (+30+% YoY) grew significantly in 9M24. These emerging businesses contributed over 10% to Mindray’s overseas revenue. We expect IVD and emerging businesses to become the primary growth drivers for Mindray’s overseas businesses.

Maintain BUY. We lowered our earnings forecasts with target price adjusted to RMB 328.81 (WACC: 9.3%, terminal growth rate: 3.0%).