Yidu Reports Fiscal 1H 2023 Revenue Decline, Misses Growth Forecast Gravely; FVE Lowered to HKD 5.20

We are lowering our fair value estimate for Yidu Tech to HKD 5.20 from HKD 11.00 after the company significantly missed its revenue forecasts after reporting first-half fiscal 2023 results. Yidu reported revenue of CNY 474 million, a 5.5% decline year on year. The company previously forecast for a 47% growth on a two-year CAGR and that it will reach breakeven in 2024; but given the lackluster results, we believe that it is unlikely that Yidu can come close to its targets. The company reported operating loss margins of 62%, which is an improvement from 92% loss a year ago, but losses widened sequentially from 36% in fiscal second-half 2022. In addition, gross margins also declined year on year to 26% from 29% a year ago. As a result, we are revising our revenue assumptions for Yidu significantly to a 3% decline in 2023 year on year and for a hopeful return to modest growth in 2024. We are also pushing back Yidu’s breakeven target date to 2026 rather than 2024 as originally forecast.