Yidu Tech Inc. (Yidu), a leading Chinese AI/big data company with 5% market share as of 2019 in a highly fragmented market, assists healthcare companies/users to raise the efficiency and efficacy of their processes by enabling them to draw deeper insights from data. We believe Yidu’s industry leading data intelligence infrastructure – YiduCore – offers a differentiated value proposition to both China’s top research hospitals, regulators, and global life sciences firms. Driven by its unique positioning, we expect Yidu to increase its customer base, raise recurring/retained revenues, and expand its use-cases to penetrate newer customers (e.g, patients/doctors).
Yidu addresses key China healthcare challenges including the mismatch of healthcare demand-supply and rising medical costs. Given the high volumes, velocity and variety of data produced daily across its customer groups – which Yidu can continuously collate and analyze – we see Yidu’s competitive edge growing by the day. The platform is also highly scalable, and can benefit from strong network effects as more customers are added onto the platform. We forecast Yidu’s revenues/gross profits to grow by +80%/+92% CAGR (FY20-23E). However, our SOTP-based 12m TP of HK$67 (8% upside) implies an FY23E P/Sales of 16x, which in our view reflects this growth potential and the evolving regulations/competition in the emerging industry. We initiate coverage on Yidu with a Neutral rating.
Key risks: (i) concentrated customer base; (ii) substantial reliance on public sector; (iii) higher/lower than expected risks associated with data privacy; (iv) higher/lower than expected competition; (v) higher/lower than expected overseas expansion risks; and (vi) data center disruptions.