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Baidu (BIDU US) Company Update Summary

Core Content

This document provides a detailed update on Baidu's financial performance and outlook for the fourth quarter of 2021 (4Q21) and beyond, highlighting key results, business segments, and analyst recommendations. The report also includes financial summaries, key ratios, and market data.

Key Financial Results

• 4Q21 Revenue: RMB33bn, up 9.3% YoY, 3% above consensus.
• Online Marketing Revenue: RMB20.7bn, flat YoY, impacted by the delay in premium content.
• Baidu Core Revenue: RMB26.0bn, up 12% YoY, within the expected range of 5–16% growth.
• Non-GAAP Net Profit: RMB4.08bn, down 41% YoY, due to higher COGS and R&D expenses, partially offset by lower SG&A costs.
• Adj. EPS: RMB11.60, down 42.2% YoY, but slightly above the consensus.

Business Highlights

• AI Cloud Growth: AI Cloud revenue increased by 69% YoY, significantly outperforming the overall industry growth.
• Ads Recovery Outlook: Management expects ads to reach the bottom in Q1 2022 (1Q22E), with a potential for positive growth in the second half of 2022 (2H22E) as the macroeconomic environment recovers.
• Apollo Progress: Apollo Go has expanded to eight cities, with plans to reach 65 cities by 2025. It began charging fees in November 2021 in Beijing, with sequential revenue growth almost doubling.

Financial Outlook

• FY22E Revenue Forecast: RMB136.89bn, up 10.0% YoY.
• FY22E Adj. Net Profit Forecast: RMB16.71bn, down 11.5% YoY.
• FY23E Revenue Forecast: RMB151.37bn, up 10.6% YoY.
• FY23E Adj. Net Profit Forecast: RMB20.50bn, up 22.3% YoY.
• FY24E Revenue Forecast: RMB170.50bn, up 12.6% YoY.
• FY24E Adj. Net Profit Forecast: RMB23.99bn, up 16.7% YoY.

Analyst Recommendations

• Rating: BUY (Maintain)
• Target Price: US$218.8
• Upside/Downside: +35.2% from current price (US$161.8)
• Reasoning: The AI cloud segment is expected to continue driving growth, and the ads segment is anticipated to recover in 2H22E. The company's financials and earnings are stable, and multiple downside risks are limited.

Key Ratios

• Gross Margin: 48.1% in FY22E, showing slight improvement over previous years.
• Operating Margin: 9.1% in FY22E, reflecting ongoing cost management.
• Net Margin: 12.3% in FY22E, with a projected increase in future years.
• ROE: 7.8% in FY22E, with a projected rise to 9.4% in FY24E.
• P/E Ratio: 20.8x in FY22E, compared to 16.0x in FY20A.

Shareholding and Market Data

• Market Cap: US$53,729.1 million
• Average 3-Month Trading Volume: US$511.82 million
• 52-Week High/Low: US$311.18/US$132.14
• Issued Shares: 278 million
• Top Shareholders:
  • BlackRock Inc: 43.3%
  • Vanguard Group: 3.6%
  • Primecap Management: 3.4%

Share Performance

• 1-Month Return: 6.5% (Absolute), 3.9% (Relative)
• 3-Month Return: 0.0% (Absolute), 13.2% (Relative)
• 6-Month Return: -0.1% (Absolute), 10.4% (Relative)

Earnings Revision

• Revenue: No change in forecast from FY22E to FY24E.
• Adj. Net Profit: No change in forecast from FY22E to FY24E.
• EPS: No change in forecast from FY22E to FY24E.

Summary of Risks and Assumptions

• Macro and Regulatory Pressures: Continued challenges from macroeconomic conditions and tightening regulations are expected to impact the online marketing segment in the short term.
• AI Cloud Momentum: Expected to continue and provide growth despite challenges in the advertising sector.
• Apollo Monetization: Potential for further monetization and growth in the auto parts and transportation sectors.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.

Disclaimer

• The report is not investment advice and should not be relied upon for investment decisions.
• CMBIGM does not provide individually tailored investment advice and assumes no liability for any losses or damages arising from reliance on the information in the report.
• The information is based on publicly available data and is subject to change without notice.

Analyst Certification

• The research analyst certifies that the views expressed in the report accurately reflect their personal views and that there are no conflicts of interest affecting the report's objectivity.

Additional Information

• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
• For recipients in the United Kingdom, United States, and Singapore, specific legal and regulatory considerations apply.