Yidu suffers from lingering Covid chill

The medical data company’s revenue tumbled 55% in the six months through March as hospitals and other medical institutions delayed their resumption of non-Covid services

Key Takeaways:

• Yidu Tech’s revenue fell by more than half in the second half of its fiscal year through March, accelerating from a 5.5% decline in the first half of its fiscal year
• Analysts expect the medical data company to return to growth mode this year, but it will also need to show investors it can operate profitably  

By Trevor Mo

Chinese companies have generally rebounded since Beijing scrapped its “zero Covid” policy at the end of last year, ending punishing control measures that were wreaking havoc on business. But medical big data specialist Yidu Tech Inc. (2158.HK) is defying that rule with an accelerating business slump after its revenue started contracting earlier last year.

The company, whose software solutions are used by medical institutions for functions like assisting in disease diagnosis and drug development, saw its revenue tumble by 55% to 330 million yuan ($46 million) in the six months through March, accelerating from a 5.5% decline for the previous six-month period through last September, according to calculations using its latest annual report released last Friday and previous interim report.

Specific data for the three months through March was not available as the company doesn’t release quarterly earnings reports. For its full fiscal year through March, Yidu reported its revenue fell 35% year-on-year to 805 million yuan. It blamed the sluggish annual performance mainly on “the prolonged pandemic that resulted in the delays in bidding, on-site implementation and client acceptance of certain projects.”

Financial research firm Morningstar said Yidu’s business failed to recover even after the lifting of pandemic restrictions because hospitals only began to focus on non-Covid services in March and April this year, resulting in a lag in their resumption of normalized operations.

The nine-year old Yidu has reported losses every year since 2019, and the red ink continued to flow with a 632 million yuan loss in its latest fiscal year. Still, that amount represented a year-over-year improvement of 17.5%, reflecting initial success of an aggressive cost-control campaign that saw it cut selling and marketing expenses by 34.4%, administrative expense by 31% and R&D expenses by 7.1% for its 2023 fiscal year.

Investors seemed most focused on the narrowing losses, at least based on the relatively muted reaction that saw Yidu’s shares drop just 3% in the three trading days after its annual report came out last week. But the stock has fallen steadily over the longer term since its Hong Kong IPO in early 2021. Its latest closing price of HK$5.57 on Wednesday is about one-fifth of its IPO price, and is down by 90% from an all-time high of HK$60 at its peak just after the listing.

Even after the share declines, Yidu’s stock still trades at a relatively high price to sales (P/S) ratio of 4.46 times. That’s slightly behind the 4.57 times for rival Sinohealth Holdings Ltd. (2361.HK), and well behind the 15 times for Medlive Technology (2192.HK), both of which are already profitable.

Modest growth

While Yidu’s sharp decline in the second half of its latest fiscal year was probably exaggerated by Covid, its momentum was already slowing dramatically even before that. Its revenue grew by triple digits in both its 2019 and 2020 fiscal years in the run-up to its listing. But things began to cool after that, with 55% and 43% growth for the following two years. And, of course, the figure began contracting in its latest fiscal year.

Despite its bumpy start in the post-pandemic era, most analysts covering the company believe that Yidu will return to growth this year. Among those, Morningstar expects the company’s revenue to grow by a modest 20% for its fiscal 2024 year, and five analysts polled by Yahoo Finance expected an average of 24% growth.

Those predictions make sense as hospitals, drug companies and other medical institutions that are Yidu’s main clients restart IT projects that they previously put on hold. Medical institutions are also likely to ramp up new IT spending, which is expected to increase by 28% to 28.4 billion yuan this year, according to a report by research firm ASKCI.

Yidu divides its customer into three categories: hospitals and regulatory institutions that use its big data platform and solutions for functions like assisting in disease diagnoses and public health monitoring; medical institutions that use its life science solutions for new drug and medical device development; and patients who use its health management platform and solutions to access health services such as online consultation. 

Founded in 2014, Yidu started out by mostly targeting hospitals and regulatory institutions for its business. But it has diversified since then, and contributions from its newer life science solutions exceeded those from its original big data platform and solutions for the first time in its latest fiscal year, with the former providing 31.4% of total revenue versus 27.6% for the latter.

All three segments posted declines in Yidu’s latest fiscal year. Its big data platform and solutions recorded the steepest drop at 50.1%, followed by 29.6% for life science solutions and 22.4% for its health management platform and solutions.

Its better-performing life science solutions is expected to drive the bulk of Yidu’s revenue growth over the next few years, according to the Morningstar report. That’s because demand for new drugs and medical devices in China’s growing healthcare industry is strong, the report said, citing third-party data showing the number of clinical trials conducted in the country grew by a robust 38% in 2021, after increasing 17% in 2020.

It seems clear that Yidu’s days of triple-digit growth are a thing of the past. Still, even the return to more modest growth analysts are expecting this year isn’t a sure bet. To ensure its longer-term prospects, the company will need to eventually loosen its purse strings and increase operational spending. Such a move could come soon, as the company develops its own large-scale AI model, which will likely involve big R&D spending.

In the more immediate future, Yidu will need to balance its R&D spending with investors’ desire to see some profits from the company. The latest sluggish annual report doesn’t bode well in that regard, prompting Morningstar to push out its forecast for Yidu to break even by a year to 2028. That’s also well behind Yidu’s own earlier prediction of breakeven by 2025.  

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