20220808-招银国际-Auto_on_progress,_despite_slower_ads_recovery_4页_877kb

Baidu (BIDU US) Company Update Summary

Core Content and Key Highlights

This document provides a comprehensive update on Baidu's financial performance and outlook for the second quarter of 2022 (2Q22E) and beyond, focusing on the challenges faced by its advertising business, the progress in its autonomous driving initiatives, and the overall financial performance and valuation expectations.

Main Points and Views

Financial Performance (2Q22E)

• Revenue: Expected to decline by -7% YoY to $29.18 billion RMB, 1% below consensus.
• Online Marketing Revenue: Forecasted at -16% YoY, which is more negative than the prior quarter's -14% YoY.
  • The decline is attributed to challenging macroeconomic conditions and fewer variety shows under the new strategy.
• Non-GAAP Net Profit: Projected at -38% YoY, with core OPM at 16%.
• Consensus Comparison:
  • Revenue: $29,435 million, Baidu's forecast is -1% below consensus.
  • Non-GAAP Net Profit: $3,442 million, Baidu's forecast is -3% below consensus.

Advertising Recovery Outlook

• Ads Recovery: Expected to be slow, with core ads declining by -9% YoY in 3Q22E, slower than the -14% YoY in 2Q22E.
• Challenges:
  • Offline business and SMEs continue to face budgetary pressure.
  • ECPM has not rebounded yet.
• Positive Signs:
  • July ads showed a slight MoM improvement.
  • Ecommerce, medical service, and travel ads experienced a solid rebound.

AI Cloud and Auto Progress

• AI Cloud Growth: +28% YoY in 2Q22E, above industrial growth, but may show volatility.
• Auto Segment:
  • Demonstrated good progress at the 2022 Baidu World event.
  • Apollo Go achieved a significant scale and RT6 functionality.
  • Apollo Robotaxi received approval for operation without human assistance in Chongqing Yongchuan district on 4 August 2022, marking a key milestone.
• Long-Term Potential: The auto business is expected to unlock Baidu's TAM and valuation in the long run.

Earnings Revisions

• Earnings Trimmed: By 3-6% for FY22-24E to reflect slower-than-expected ads recovery.
• Target Price: Set at US$203, which is the same as the previous target price.
• 12-Month Upside: +47.3% compared to the current price of US$137.8.

Valuation Metrics

• P/E Ratio: 24x FY23E P/E.
• P/S Ratio: 2.5x.
• ROE: 34.3% (FY24E).
• ROA: 5.3% (FY24E).
• Net Margin: 11.5% (2Q22E).

Key Financial Figures

Revenue Trends

• FY20A: 106,360 RMB million
• FY21A: 123,635 RMB million (+16.2% YoY)
• FY22E: 124,804 RMB million (+0.9% YoY)
• FY23E: 140,902 RMB million (+12.9% YoY)
• FY24E: 157,854 RMB million (+12.0% YoY)

Non-GAAP Net Profit

• FY20A: 21,306 RMB million
• FY21A: 17,972 RMB million (-14.9% YoY)
• FY22E: 15,237 RMB million (-37.6% YoY)
• FY23E: 18,926 RMB million (+23.0% YoY)
• FY24E: 22,476 RMB million (+17.6% YoY)

EPS (RMB)

• FY20A: 61.6
• FY21A: 51.7
• FY22E: 44.0
• FY23E: 54.1
• FY24E: 63.6

Gross Margin

• FY20A: 48.1%
• FY21A: 48.0%
• FY22E: 47.9%
• FY23E: 49.0%
• FY24E: 50.0%

Operating Margin

• FY20A: 14.0%
• FY21A: 11.0%
• FY22E: 6.0%
• FY23E: 25.5%
• FY24E: 16.2%

Key Ratios

Analyst Recommendations

• Rating: BUY
• Reasoning:
  • Multiple downside risks are limited.
  • Focus on 2H22E ads recovery and long-term AI cloud contribution.
• Target Price: US$203 (24x FY23E P/E)

Shareholding and Performance

Shareholding Structure

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

Share Performance (3M, 6M, 12M)

• Absolute:
  • 1-month: +1.0%
  • 3-month: -23.4%
  • 6-month: -23.6%
• Relative:
  • 1-month: +15.1%
  • 3-month: -8.4%
  • 6-month: +7.5%

Market Cap

• US$39,991 million

Related Reports

1. 2Q22E epidemic headwinds well priced in – 27 May 2022
2. Soft ads to linger in 2Q22E for epidemic – 19 Apr 2022
3. Eye-catching AI cloud to offset soft ads – 2 Mar 2022

Disclosures and Disclaimer

• Analyst Certification: The analyst certifies that the views expressed reflect personal opinions and that there are no conflicts of interest.
• Ratings:
  • BUY: Potential return of >15% over 12 months.
  • OUTPERFORM: Industry expected to outperform the market.
• Important Disclosures:
  • The report is not investment advice.
  • Past performance does not indicate future results.
  • Risks are involved in trading any securities.
  • No liability is accepted for any reliance on the report's information.

Summary

Baidu is expected to face challenging conditions in the second quarter of 2022, with advertising revenue declining by -16% YoY and non-GAAP net profit at -38% YoY. Despite these headwinds, the auto business continues to show positive momentum, with Apollo Robotaxi receiving approval for operation without human assistance, marking a key milestone. The AI cloud is anticipated to grow above industry standards in the short term but may experience volatility. Analysts maintain a BUY rating, with a target price of US$203, and suggest focusing on long-term growth in the auto and AI cloud sectors. The financial performance and valuation metrics show a slower recovery in the advertising segment but positive trends in other services.