20220530-招银国际-2Q22E_epidemic_headwinds_well_priced_in_4页_890kb

Baidu (BIDU US) Company Update Summary

Core Content

This document provides an equity research update on Baidu (BIDU US) for the period ending in 2Q22E, highlighting the company's financial performance, market outlook, and investment recommendations. It includes detailed financial data, key metrics, and insights from CMB International Global Markets (CMBIGM).

Key Financial Performance

1Q22 Results

• Revenue: +1% YoY, 2% above consensus.
• Online Marketing Revenue: -6% YoY to RMB17bn, with iQiyi ad revenue down 30% YoY due to macroeconomic challenges and fewer variety shows.
• Baidu Core Revenue: +4% YoY, in line with guidance.
• Non-GAAP Net Profit: -10% YoY, but 119% above consensus, driven by iQiyi's early profitability.
• Adj. EPS (RMB): 11.22, 133% above CMBIGM's estimate.

Financial Metrics

• Gross Margin: 45.3% (1Q22), slightly down from 45.0% (1Q21).
• Operating Margin: 20.2% (1Q22), up from -1.8% (1Q21).
• Adj. Net Margin: 30.2% (1Q22), up from 5.9% (1Q21).
• ROE: 42.3% (1Q22), down from 44.2% (1Q21).
• P/E Ratio: 14.8 (FY20A), 17.7 (FY21A), 19.4 (FY22E), 16.3 (FY23E), 13.9 (FY24E).
• P/S Ratio: 3.0 (FY20A), 2.6 (FY21A), 2.4 (FY22E), 2.1 (FY23E), 1.9 (FY24E).

Market Outlook

• 2Q22E Revenue: Expected to decline by -4% YoY due to epidemic resurgence.
• Online Marketing: Expected to reach a trough in 2Q22E with a -12% YoY decline, impacting key sectors like medical services and travel.
• AI Cloud Growth: Expected to show volatility in 2Q22E (+30% YoY), but long-term potential remains strong.
• Intelligent Driving: Baidu received a nomination from Dongfeng Motor to adopt Apollo Self Driving, and Apollo Go expanded to ten cities with 196K rides in 1Q22.
• Auto Orders: Increased to >RMB10bn in 1Q22, up from RMB8bn in 4Q21.

Investment Recommendation

• Rating: Maintain BUY.
• Target Price (TP): US$203.0 (24x FY23E P/E).
• Upside: +49.0% from current price of US$136.2.
• Rationale: Despite short-term headwinds, the company's earnings are largely unchanged, and the long-term potential of AI cloud and intelligent driving remains intact.

Financial Projections (FY20A-FY24E)

Key Ratios

Shareholding & Stock Data

• Market Cap (US$ mn): 39,991
• Avg 3m t/o (US$ mn): 591.74
• 52w High/Low (US$): 209.17 / 101.62
• Issued Shares (mn): 276

Shareholding Structure

• BlackRock Inc: 4.4%
• Primecap Management: 3.5%
• Doge & Cox: 2.6%

Share Performance

Analyst Certification

The research analyst certifies that:

1. All views expressed accurately reflect his or her personal views.
2. No part of his or her compensation is related to the specific views expressed in this report.
3. No trading in the stock covered in the report was conducted within 30 calendar days prior to the report's issue.
4. No trading is planned within 3 business days after the report's issue.
5. No financial interests in the companies covered.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• HOLD: Stock with potential return of +15% to -10%.
• SELL: Stock with potential loss of over 10%.
• NOT RATED: Stock not rated.

Legal & Disclaimer

• The report is for informational purposes only and not investment advice.
• CMBIGM is not liable for any loss or damage arising from reliance on the report.
• The report is subject to change without notice.
• CMBIGM may have conflicts of interest and may act as a market maker or engage in transactions related to the companies mentioned.

Distribution Restrictions

• United Kingdom: Only for persons falling under Article 19(5) or Article 49(2)(a) to (d) of the Financial Promotion Order 2005.
• United States: Intended solely for major US institutional investors; not for general distribution.
• Singapore: Distributed by CMBI (Singapore) Pte. Limited (CMBISG), an Exempt Financial Adviser, to Accredited Investors, Expert Investors, or Institutional Investors only.

Summary of Key Points

• Epidemic Impact: 1Q22 results were better than feared, with the 2Q22E expected to be the trough for ads.
• AI Cloud Growth: Expected to remain strong despite short-term volatility.
• Intelligent Driving: Positive developments with Dongfeng Motor and Apollo Go expansion.
• Investment Recommendation: Maintain BUY with a target price of US$203.0.
• Financial Performance: Strong non-GAAP net profit and improved operating margin.
• Valuation: P/E ratio is projected to remain attractive at 24x FY23E.
• Risks: Short-term headwinds from the epidemic, but long-term growth potential is intact.

Conclusion

Baidu's performance in 1Q22 was resilient despite the ongoing epidemic, with better-than-expected results and improved cost controls. While 2Q22E may see a decline in ad revenue, the company's core business and AI cloud growth are expected to recover in the second half of 2022. The long-term potential remains strong, and the investment recommendation is to maintain a BUY rating with a target price of US$203.0.