Yidu Tech Pares Losses in Search of Elusive Profits

The medical big data company’s loss narrowed by 80% in its latest fiscal year, though its revenue growth slowed in the second half of that period

Key Takeaways:

  • Yidu Tech’s revenue rose 43% in its fiscal year through March, though that figure was down from the 62.3% growth figure for the first half of its fiscal year
  • The company is well positioned to benefit from Beijing’s efforts to improve efficiencies in China’s sprawling but fragmented healthcare sector

By Christina Meng

The past year hasn’t been great tonic for shareholders of medical big data firm Yidu Tech Inc. (2158.HK), whose stock went from highflyer to cellar dweller over that time. But the company’s latest annual results may offer a glimmer of hope for investors still suffering from stock market malaise.

As a leading enterprise in China’s medical intelligence industry, Hong Kong-listed Yidu achieved operating revenue of 1.24 billion yuan ($185.1 million) in its latest fiscal year through March, up a healthy 42.7% year-on-year, according to its latest annual report released last Friday. That shows it’s rapidly finding a market for its public health management model powered by digital technologies and artificial intelligence (AI).

At the same time, the company’s net loss narrowed sharply to 762 million yuan, representing a nearly 80% improvement from its 3.7 billion yuan loss the previous year.

But the news wasn’t all good. A comparison of the company’s full-year report with its interim report from last November showed its full-year revenue growth was down considerably from the 62.3% growth rate in the first half of its fiscal year. That slowdown was particularly pronounced for the company’s health management platform and solutions, which posted 624.6% growth in the first half of the year, but far slower 68.5% growth for the full year.

The company didn’t comment on the slowdown, nor did it say whether it expects growth to rebound in its new fiscal year that began in April. But many companies in China have reported similar slowdowns, especially in the first three months of 2022, due to the country’s strict Covid-control measures that often force individual businesses to slow or halt operations for weeks or even months at a time.  

Revenue from Yidu’s health management platform business totaled 424.9 million yuan in the latest fiscal year, accounting for about a third of the company’s total revenue. Its biggest revenue contributor, its big data platform and solutions business, grew by just 10.7% for the year to 445 million yuan.

Yidu’s shares rose 5.5% in the three trading days this week after the results announcement, and are now up more than 40% from their recent low at the end of May. But things are far less rosy over the longer term, with the share price down about 86% from its listing price of HK$69.80 in early 2021.

Its relatively low price-to-book (P/B) ratio of about 2 seems to show the company may be worth strong consideration for investors now. Competitors Winning Health Technology Group Co. Ltd. (300253.SZ) and B-SOFT Co. Ltd. (300451.SZ) both have higher P/B ratios of 3.8 and 2.5, respectively, probably at least partly because both are already profitable.

All three of Yidu’s main business segments have maintained rapid growth for its last three fiscal years. While its big data platform and solutions accounted for 36% of its revenue in the latest year, its life science solutions and health management platform and solutions weren’t far behind at 29.05% and 34.35%, respectively, according to the announcement.

Revenue from its life sciences solutions nearly doubled in its latest fiscal year to 359.4 million yuan from the previous year due to an increasing number of active customers.

Big R&D spending

While its revenue growth is slowing, Yidu continues to spend briskly on its core big data systems. Its R&D expenditure increased 66.2% in its latest fiscal year to 369 million yuan, outpacing its revenue growth and accounting for 29.8% of total revenue.

The company’s crown jewel is its YiduCore big database, which had processed and analyzed more than 2.6 billion healthcare records from over 600 million patients, covering over 800 hospitals by the end of March. The number of diseases covered by YiduCore was greater than 9,000 by that time, representing an increase of more than 1,000 diseases from six months earlier.

Yidu is at the forefront of a new generation of Chinese big data medical companies aiming to boost efficiency in China’s healthcare system as the nation’s population ages and Beijing tries to make high quality healthcare more widely available. Demand for such services is coming from a number of sources, from medical to pharmaceutical enterprises, all hoping to reduce their costs and boost efficiency in China’s massive medical market with 1.4 billion consumers.

The medical intelligence industry’s nascent state in China means development potential is huge for companies that can find the right formula for success. Market research firm Frost & Sullivan estimates China’s healthcare intelligence industry will be worth more than 1.1 trillion yuan in 2030.

National policies in recent years have promoted the integration of the medical industry with cutting-edge technologies. Syncing with such policies is critical to doing successful business in China because companies that contribute to such efforts can often receive strong government support in everything from getting new business permits to receiving state subsidies.

China’s latest Five-Year Plan, which runs from 2020 to 2025, points out the importance of seeking AI breakthroughs in areas such as natural language processing. The country’s Healthy China 2030 Plan also proposes promotion of better integration between the medical industry and big data. The plan also seeks to promote an acceleration of the use of AI technology for clinical- and medical imaging-assisted diagnoses.

Investors looking to boost their exposure to China’s smart healthcare industry might do well to give Yidu some consideration. According to the Frost & Sullivan report in the company’s IPO prospectus from 2021, Yidu ranked No. 1 in terms of revenue in the market for healthcare intelligence related to medical institutions and regulators. It was also No. 1 in the emerging healthcare intelligence market, with 25.6% of the market, and No. 1 for the total healthcare intelligence market.

Goldman Sachs recently forecast that Yidu’s revenue will rise by an average annual rate of 43% from 2021 to 2026 thanks to favorable policies, opportunities in public health, and the company’s stricter data privacy policies than its peers. The investment bank also expects the company’s losses to narrow in the second half of 2022 from a year earlier, and has moved up its breakeven forecast by a year to Yidu’s 2024 fiscal year.

Given recent positive trends in Hong Kong and mainland China’s A-share stock markets, there’s reason to expect that Yidu’s stock could be lifted by a rising tide that raises many undervalued ships. The threat of a global recession will counter that to some extent, as will the potential for harsher Covid control measures if China experiences more pandemic flareups in the second half of the year.

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