{"id":31955,"date":"2023-07-05T23:55:35","date_gmt":"2023-07-06T03:55:35","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/yidu-suffers-from-lingering-covid-chill-yiduf\/"},"modified":"2023-07-05T23:55:36","modified_gmt":"2023-07-06T03:55:36","slug":"yidu-suffers-from-lingering-covid-chill-yiduf","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=31955","title":{"rendered":"Yidu Suffers From Lingering Covid Chill (YIDUF)"},"content":{"rendered":"
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Chinese companies have generally rebounded since Beijing scrapped its \u201czero Covid\u201d policy at the end of last year, ending punishing control measures that were wreaking havoc on business.<\/p>\n

But medical big data specialist Yidu Tech Inc.<\/strong> (<\/span>OTCPK:YIDUF, <\/span>OTCPK:YDUTY) is defying that rule with an accelerating business slump after its revenue started contracting earlier last year.<\/span><\/p>\n

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.<\/p>\n

Specific data for the three months through March was not available as the company doesn\u2019t 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 \u201cthe prolonged pandemic that resulted in the delays in bidding, on-site implementation and client acceptance of certain projects.\u201d<\/span><\/p>\n

Financial research firm Morningstar said Yidu\u2019s 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.<\/p>\n

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.<\/p>\n

Investors seemed most focused on the narrowing losses, at least based on the relatively muted reaction that saw Yidu\u2019s shares drop just 3% in the three trading days after its annual report came out last week.<\/p>\n

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.<\/p>\n

Even after the share declines, Yidu\u2019s stock still trades at a relatively high price to sales (P\/S) ratio of 4.46 times. That\u2019s slightly behind the 4.57 times for rival Sinohealth Holdings Ltd.<\/strong>, and well behind the 15 times for Medlive Technology<\/strong> (OTCPK:MDLVY), both of which are already profitable.<\/p>\n

Modest growth<\/strong><\/h2>\n

While Yidu\u2019s 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.<\/p>\n

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.<\/p>\n

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\u2019s 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.<\/p>\n

Those predictions make sense as hospitals, drug companies and other medical institutions that are Yidu\u2019s 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.<\/p>\n

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.<\/p>\n

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.<\/p>\n

All three segments posted declines in Yidu\u2019s 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.<\/p>\n

Its better-performing life science solutions is expected to drive the bulk of Yidu\u2019s revenue growth over the next few years, according to the Morningstar report.<\/p>\n

That\u2019s because demand for new drugs and medical devices in China\u2019s 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.<\/p>\n

It seems clear that Yidu\u2019s 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\u2019t a sure bet.<\/p>\n

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.<\/p>\n

In the more immediate future, Yidu will need to balance its R&D spending with investors\u2019 desire to see some profits from the company. The latest sluggish annual report doesn\u2019t bode well in that regard, prompting Morningstar to push out its forecast for Yidu to breakeven by a year to 2028. That\u2019s also well behind Yidu\u2019s own earlier prediction of breakeven by 2025.<\/p>\n

Disclosure:<\/strong> None <\/p>\n

Original Post<\/em><\/p>\n

Editor’s Note:<\/strong> The summary bullets for this article were chosen by Seeking Alpha editors.<\/p>\n

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Chinese companies have generally rebounded since Beijing scrapped its \u201czero Covid\u201d 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. (OTCPK:YIDUF, OTCPK:YDUTY) is defying that rule with an accelerating business slump after its revenue started contracting earlier last year. 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