Yidu Tech Earnings: Mixed Results as Losses Pared, but Still Seeking Durable Robust Growth

We maintain our HKD 5.20 fair value estimate for no-moat Yidu Tech after mixed fiscal 2024 first-half results. Operating losses narrowed to CNY 130 million from CNY 292 million a year ago, but revenue declined 25% year on year to CNY 356 million. The revenue decline was driven by a 71% drop in sales from the health management platform, which sells mostly health insurance and disease management services, as Yidu is restructuring products that have low margins. The life science solutions segment, which focuses on clinical development and commercialization of drugs, saw a 16% increase but did not disclose the incremental customers. We believe that this business may still see headwinds in the short term, given the recent crackdown on graft in the healthcare industry, which is stalling the development of new drugs. The Big Data solutions segment, Yidu’s other core analytics business, only increased 3% year on year, which may signal lukewarm demand from the government and public research sectors. Nevertheless, Yidu was still able to add 6 hospitals (to 94 total) and 4 regulatory bodies (to 38) to its client list; we think this reflects modest demand for its artificial intelligence technology and services. While we are encouraged that Yidu is streamlining loss-making businesses and better allocating its capital, we believe management’s previous forecast of 40%-50% annual revenue growth for the next one to three years may be unlikely now. We want to see stable double-digit revenue growth coupled with margin expansion before shifting to a more positive outlook.