2019.12.27 CoStone Capital Views:
In 2016, Mindray (300760.SZ) delisted from the US and completed capital increase and share enlargement. At that time, its P/E was over 30 times, deterring many institutions. When Mindray’s founder Xu Hang decided to quit the US exchange market, he asked CoStone Capital Chairman Zhang Wei, “What is the expected rate of return on this investment in Mindray?” Zhang Wei replied that doubling in three years was a sure thing, who invested hundreds of millions of yuan in Mindray without hesitation.
CoStone Capital Gaining 3X Returns on Mindray in Just 3 Years
In 2016, Mindray (300760.SZ) delisted from the US and completed capital increase and share enlargement. At that time, its P/E was over 30 times, deterring many institutions. When Mindray’s founder Xu Hang decided to quit the US exchange market, he asked CoStone Capital Chairman Zhang Wei, “What is the expected rate of return on this investment in Mindray?” Zhang Wei replied that doubling in three years was a sure thing, who invested hundreds of millions of yuan in Mindray without hesitation.
Zhang Wei explained the reasons for investing in Mindray as follows.
First, Mindray was the largest medical device company in China. Meanwhile, as a company that had been listed on the New York Stock Exchange for many years and had successfully delisted from the US, Mindray had no problems with standardization, which ensured Mindray’s listing on A-share market. Second, Mindray would maintain such high growth for a long time.
These two reasons guaranteed a high margin of safety for investing Mindray. As an experienced investor, Zhang Wei dares to invest heavily in companies with good margin of safety, who understands that with a sound margin of safety, there is a high probability of high returns.
“From the perspective of investment, how much returns one can get is decided by whether his understanding of this issue is vague or firm and sharp,” Zhang Wei said. CoStone Capital had intended to invest in Mindray before it started delisting from the US, which was eventually missed because of the founder’s plan to leave the US stock market. Nevertheless, CoStone Capital got an opportunity to re-examine Mindray and finally confirm the investment in it when Mindray prepared capital increase and share enlargement before returning to the A-share market. Zhang Wei believed that Mindray would maintain its advantages despite the delisting from the US. In addition, Mindray had always surpassed most domestic device companies in terms of continuous high proportion of R&D investment; and there appeared the trend of domestic medical devices replacing foreign brands. All this ensured that Mindray would still enjoy great development space.
Although Mindray gained the favor of institutional investors before the re-listing and saw continued increase in its stock price after the listing, it still encountered many doubts from the market. For example, some people doubted that whether there was enough development room in the medical device market and whether Mindray’s current valuation overdrew its future growth.
Zhang Wei said frankly that Mindray’s performance after returning to the A-share market exceeded his expectations. The current pursuit of leading companies and blue chips in the secondary market is based on companies’ good performance. Therefore, Mindray’s continuous growth meets the requirements of investors, especially institutional investors. In the short term, the policy dividends of the medical industry including hierarchical diagnosis and treatment will also give enterprises enough growth room. In the long term, domestic products replacing imported ones is the general trend and is speeding up, which guarantees broad market space.
Zhang Wei once said that there are two standard answers to corporate success. First, there must be a clear strategy and sufficient patience and determination to establish an organizational system and R&D system; second, entrepreneurship is essential to high returns.
Over the past 20 years, Mindray’s growth has been well explained by these two answers. From the beginning of its establishment, the company has never deviated from its main business of medical equipment. The founder has spent nearly 30 years focusing on how to make better domestic medical devices.
Rewritten by: Yang Yang, Edited by: Du Zhixin, Li Yunzhen
The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.
Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.
Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.
Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.
These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.
For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, makingHuawei anindustry leader.
So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.
At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across
