Yidu Earnings: Still Yet To See Robust Growth After Another Lackluster Set of Results

We keep our fair value estimate at HKD 5.20 for Yidu 02158 after its lackluster fiscal second-half 2023 revenue of CNY 330 million, down 55% year over year. While the company increased the number of clients and users for its main Big Data and platform solutions segment, the growth was overshadowed by a 56% decline in average revenue per client to CNY 1.8 million. Yidu attributed the revenue decline to continuing headwinds from the pandemic, as hospitals were just beginning to focus on other services than COVID-related in March and April, and a lag in resuming normalized operations. Management remains optimistic that revenue growth can return to its previous forecast of 40%-50% per year starting in 2025, but its fiscal 2024 forecast is likely to be conservative as hospitals slowly transition into their clinical trials and services again. We forecast for overall 20% revenue growth year over year in fiscal 2024.

Operating loss margin also deteriorated sequentially to 85% from 62%. Yidu guided that losses would narrow significantly in fiscal 2024 but did not provide further updates, as it previously indicated that it would reach breakeven by 2025. However, we are pushing out our breakeven target by one year to 2028 and would like to see progress in either growth or margin improvement before being more positive in our outlook. We believe if Yidu cannot improve on its losses, this could disrupt revenue growth forecasts as well, as it would likely have to further cut back on operations. There was already some cost-cutting in the second half of fiscal 2023 as operating expenses declined 17% year on year, and we expect Yidu to reduce more headcount next year. However, the company indicated it is developing its own large-scale artificial intelligence model, which will likely increase research and development expenses. We expect selling, general, and administrative costs to decline by another 25% but for R&D costs to increase 8% in fiscal 2024 as Yidu pushes further into AI.