Slowing Revenue Growth Hurts Online Drug Platform YSB

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Key Takeaways:The gross margin on the company’s proprietary drug distribution business, its main revenue source, edged down to 6.1% last yearWith the pharma market already well developed, several distribution giants have muscled onto YSB’s turf as suppliers to pharmacies and smaller clinicsBy Molly WenDrugs-trading platform YSB Inc. (9885.HK) is feeling the pain from a stock sell-off after delivering its first annual results since listing on the Hong Kong stock market last year.China’s vast online pharmaceutical market counts digital heavyweights such as Alibaba Health OTC:ALBBY and JD Health OTC:JDHIF among its players, but YSB inhabits a niche with relatively tight profit margins as a B2B platform mainly serving smaller pharmacy chains and clinics.Earnings released early last week highlighted the challenge for YSB. Rising revenues last year and even a profit on an adjusted basis could not prevent a sharp fall in the stock price.YSB describes itself as the biggest digital provider of comprehensive out-of-hospital drug services in China. Its gross merchandise volume (GMV) rose 18.9% last year to 46.9 billion yuan ($6.5 billion), while operating income rose at the same rate to 16.97 billion yuan. The firm’s annual net loss widened to 3.21 billion from 1.5 billion yuan in 2022, as earnings took a one-off hit from the conversion of preferred shares after the IPO.Using a more representative gauge of business health, the company logged an adjusted profit of 131 million yuan in 2023 against a loss of 125 million yuan the previous year. Gross profit rose 21.3% to 1.74 billion yuan while gross margin edged up to 10.3% from 10.1%.Investors, however, were unimpressed by those healthier numbers. YSB’s shares plunged 9.1% the day after the results and, although they later recovered some ground, suffered a 4.6% fall over four trading days. The stock closed at HK$9.98 last Friday, only half the IPO price of HK$20 last June.The past six months have been a roller coaster ride for YSB. The company enjoyed a two-month honeymoon with Hong Kong investors after the listing, when the share price reached a high of HK$64.5. However, the price turned south and plummeted 46% in a day after the end of the lock-up period, as the market turned bearish on the company’s prospects. YSB’s founder and chairman, Zhang Buzhen, announced a 180-day extension to the lock-up but the downward sp...

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