20221027-招银国际-Eyes_on_new_technologies_development_18页_1mb

Baidu (BIDU US) Summary

Core Content and Key Views

Baidu is experiencing a sequential recovery in core search and feed ads demand in July-August 2022 compared to June, though the recovery is expected to be gradual and impacted by uncertain pandemic conditions. The company remains confident in its long-term potential in AI cloud, next-generation operating system development, and autonomous driving. Baidu's new initiatives are expected to drive long-term growth beyond the consumer internet space.

The BUY rating is maintained, with a target price of US$192.8, reflecting a 137.4% upside from the current price of US$81.21. The company has established a wide array of industry and ecosystem partnerships, giving it an early-mover advantage in AI cloud and autonomous driving.

Revenue and Growth Forecasts

• Total Revenue CAGR (2021-2024E): 6.4%
• Non-GAAP Net Income CAGR (2021-2024E): 8.5%
• Baidu Core (77.7% of 2022E revenue):
  • Revenue CAGR (2021-2024E): 7.5%
  • Non-GAAP OP CAGR (2021-2024E): 2.2%
  • Baidu Cloud (22.9% of 2022E revenue):
    • Revenue CAGR (2021-2024E): 26.3%
    • Non-GAAP OP CAGR (2021-2024E): 22.8% (excluding ASD)
  • iQIYI (22.9% of 2022E revenue):
    • Revenue CAGR (2021-2024E): 14.3%
    • Non-GAAP Net Income (2022E): RMB753mn (up from 2021: -4.5bn)

Revenue Breakdown (2022E)

Advertising Business

• Core search and feed ads revenue declined by -4.5% YoY in 3Q22E and is expected to recover to +2.2% YoY in 4Q22E.
• 2022E forecast: -4.0% YoY decline in core search and feed ads revenue.
• 2023E forecast: +6.6% YoY growth, driven by macroeconomic recovery.
• Ad business is a strong cash-flow generator, supporting investments in new initiatives.

Baidu Cloud

• Maintains faster-than-industry revenue growth in 1H22 despite macro headwinds.
• Market share in China's cloud infrastructure spending increased to 9.0% in 2Q22E (up from 7.8% in 2Q21).
• Strategic focus on industries like smart transportation, manufacturing, energy & utilities, and public services.
• 2021-2024E revenue CAGR: 26.3% (22.8% excluding ASD).
• Smart transportation cloud is expected to break even in 2H22E, and overall cloud segment in 2-3 years.

Autonomous Driving (ASD)

• Cumulative ASD partnership sales reached RMB10.3bn in 2Q22E, with revenue expected to materialize from 2H23 onwards.
• ASD revenue is forecast to reach RMB186mn in 2022E, RMB904mn in 2023E, and RMB2.6bn in 2024E.
• ASD revenue is reclassified to cloud, impacting cloud revenue growth.
• Apollo Go has expanded to more than ten cities, including all tier-one cities, and has received permits for driverless ride-hailing services.

Financial Metrics

SOTP Valuation

• Target Price: US$192.8 per ADS
• Valuation components:
  1. Baidu Core (ex-Apollo and Cloud): US$55.6 (based on 7.0x 2023E non-GAAP PE)
  2. Apollo ASD: US$23.8 (based on 2.0x 2030E revenue, discounted at 13.0% WACC)
  3. Baidu Cloud (ex-ASD): US$45.1 (based on 4.8x 2023E PS)
  4. Net Cash: US$61.9
  5. iQIYI and other investments: US$6.4 (with 30% holding discount applied)

Catalysts

1. Beat on 3Q22 results
2. Recovery in macroeconomic conditions
3. Faster than expected development in new business

Summary of Key Business Segments

• Baidu Core: Dominates revenue, with strong cash flow from advertising.
• Baidu Cloud: Driven by AI integration, growing faster than industry peers.
• Apollo ASD: Expected to become a major revenue driver in the long term.
• iQIYI: Turnaround expected in 2022E with improved cost structure and content optimization.

Strategic Differentiation

• Baidu Cloud differentiates itself through strong AI capabilities and industry-specific solutions.
• Integration of cloud and AI helps Baidu establish a comparative advantage in key verticals.
• Robotaxi development is a long-term growth driver, with clear milestones and monetization potential.

Market Performance

• Current Price: US$81.21
• Market Cap: US$28,851.3mn
• 12-Month Price Performance: Not specified in text, but visualized in the report.

Conclusion

Baidu is navigating short-term challenges from macroeconomic and pandemic headwinds, but the company is well-positioned for long-term growth through its focus on AI cloud, autonomous driving, and strategic partnerships. The SOTP valuation model suggests strong upside potential, with the target price of US$192.8 reflecting confidence in its future performance.