20250718-招银国际-Improvement_in_fundamentals_still_takes_time_while_new_business_on_solid_expansion_track_7页_1mb

Equity Research Update: Baidu (BIDU US)

Date: 18 Jul 2025
Company: Baidu

Key Recommendations and Ratings

• Maintain BUY recommendation.
• Target Price: Revised to US$130.30 per ADS (previously US$144.60), reflecting short-term earnings pressure from business transformation.
• Implied 2026E non-GAAP PE: 14.9x.

Business Overview

• Core business fundamentals still require time for improvement due to strategic shifts toward Gen-AI integration.
• Revenue growth for core advertising is expected to decline YoY initially, but monetization efforts for Gen-AI search results are ramping up to offset losses.
• Cloud business is expanding rapidly, with projected 26% YoY growth in 2Q25E, driven by rising AI-related demands.
• Strategic partnerships: Baidu and Uber are collaborating to deploy autonomous vehicles globally outside the US and China, enhancing revenue potential.

Financial Projections

• Revenue Forecast: Total revenue projected at RMB132.4bn for 2025E (132,407m), down 2.9% YoY, reflecting business transformation impact. Non-GAAP net profit forecast also lowered by 25-26% for 2025-2027E.
• Core Business: 2Q25E revenue expected at RMB26.1bn (down 2% YoY); non-GAAP net profit RMB4.0bn (vs RMB7.3bn in 2Q24).
• Cloud and Other Segments: Cloud revenue projected to grow 26% YoY in 2Q25E. Apollo autonomous vehicle division and other investments contribute to long-term upside.

Valuation

• Sum of the Parts (SOTP) valuation: US$130.30 per ADS, broken down as:
  • US$36.6 for Baidu Core,
  • US$0.3 for Apollo ASD,
  • US$37.5 for Baidu Cloud,
  • US$55.9 for net cash and strategic holdings with discounts.
• Key metrics:
  • Current price: US$86.32.
  • 2026E P/E: 11.2x (non-GAAP).

Risks

• Slower-than-expected adoption or monetization of Gen-AI related services.
• Potential delays in cost control and margin improvement.

Financial Summary Highlights

• Revenue YoY growth projected at negative for 2025E in core areas, but stable in later years.
• Non-GAAP net profit margin likely decreases due to transformation costs, though core business is expected to stabilize.
• ROE around 6.2%, with gearing and liquidity maintaining steady levels.

Conclusion and Outlook

The report highlights near-term challenges from business transformation, but emphasizes strong long-term potential from cloud expansion and international partnerships. Despite lowered forecasts, the investment thesis remains focused on Baidu's ability to drive sustainable growth through innovation, leading to a maintained BUY recommendation. Long-term key drivers include Gen-AI monetization and global cloud services.