20220419-招银国际-Soft_ads_to_linger_in_2Q22E_for_epidemic_5页_895kb

Baidu (BIDU US) Company Update Summary

Core Content

This document is a company update report from CMB International Global Markets (CMBIGM) on Baidu, focusing on its financial performance, market outlook, and investment ratings. The report outlines expectations for Baidu's financials in the upcoming quarters and years, considering the impact of the epidemic on its advertising business and the growth potential of its AI Cloud segment.

Main Points

Epidemic Impact on Advertising Revenue

• Baidu is expected to face short-term pressure in the first half of 2022 due to the resurgence of the epidemic.
• In 1Q22E, advertising revenue is forecasted to decline by 7% YoY, with online marketing revenue down 7% YoY.
• The ads trough is expected in 2Q22E, with a 10% YoY decline, primarily impacting key verticals such as medical services.
• However, some verticals like healthcare are showing recovery signals.

AI Cloud Performance

• AI Cloud revenue is expected to grow 45% YoY in 1Q22, despite some project delays.
• The long-term growth potential of AI Cloud remains intact, supported by the expansion of ACE smart transportation.
• AI Cloud is expected to grow 47% YoY in FY22E and is anticipated to help multiple sectors improve efficiency.
• AI Cloud is also expected to have better margin outlook due to the standardization of service offerings.

Earnings Forecast

• 1Q22E revenue is forecasted at RMB28bn, 0.2% YoY growth (in line with guidance), 1% above consensus.
• Adj. net profit is expected to decline 61% YoY to RMB1.7bn.
• Non-GAAP OPM for Baidu Core is estimated at 8%, with ads margin at trough in 1Q22E.

Earnings Revision and Target Price

• Earnings for FY22-24E are slightly trimmed by 3-5%.
• The SOTP-based target price is revised to US$203 (23x FY23E P/E) from US$218.8.
• The stock is currently trading at US$129.6, indicating a +53.8% upside to the new target price.

Financial Overview (YE 31 Dec)

• Revenue is projected to grow from RMB106,360 mn (FY20A) to RMB167,629 mn (FY24E).
• Adj. net profit is expected to increase from RMB21,306 mn (FY20A) to RMB23,263 mn (FY24E).
• Adj. EPS is forecasted to rise from RMB61.6 (FY20A) to RMB64.6 (FY24E).

Revenue Breakdown

• Online marketing services account for the majority of revenue, decreasing -7% YoY in 1Q22E.
• Other services are expected to grow, with a 13% YoY increase in 1Q22E.
• AI Cloud is expected to grow significantly, with 45% YoY growth in 1Q22 and 47% YoY growth in FY22E.

Shareholding and Performance

• BlackRock Inc holds 43.64% of the shares.
• Share performance has been negative over the past 12 months, with a -20.8% return in 6 months and -16.2% in 3 months.
• The stock's 52-week high/low is US$222.68/US$102.18.

Valuation

• SOTP valuation suggests a total valuation of US$203.
• The valuation includes segments such as Baidu Core, AI Cloud, iQiyi, Autos, and Xiaodu.
• Baidu's stake in the total valuation is 100% in most segments, with 56% in iQiyi and 83% in Autos.

Investment Rating

• The report maintains a BUY rating.
• The target price is US$203, reflecting a 23x FY23E P/E.
• The report suggests that downside risks are limited and that 2H22E ads recovery and long-term AI cloud contribution are key factors to monitor.

Key Information

• Earnings Summary:

  • Revenue is projected to grow at 7.9% YoY in FY22E and 11.5% YoY in FY23E.
  • Adj. net profit is expected to decline -12.8% YoY in FY22E and then recover to +22.2% YoY in FY24E.

• Margin Trends:

  • Gross margin is expected to increase slightly from 48.1% in FY20A to 50.5% in FY24E.
  • Operating margin is projected to rise from 11.6% in FY20A to 16.7% in FY24E.
  • Net margin is forecasted to increase from 12.5% in FY20A to 35.5% in FY24E.

• Cash Flow and Balance Sheet:

  • Operating cash flow is expected to grow from RMB23,486 mn (FY20A) to RMB34,132 mn (FY24E).
  • Cash at year-end is forecasted to increase from RMB35,826 mn (FY20A) to RMB77,763 mn (FY24E).
  • Total equity is projected to grow from RMB191,843 mn (FY20A) to RMB282,741 mn (FY24E).

• Key Ratios:

  • ROE is expected to rise from 11.5% in FY20A to 8.4% in FY24E.
  • ROA is projected to increase from 6.4% in FY20A to 5.4% in FY24E.
  • Current ratio is expected to improve from 2.7 in FY20A to 3.7 in FY24E.

Conclusion

The report highlights that Baidu's advertising business will face short-term challenges due to the epidemic, but its AI Cloud segment is expected to provide resilience and long-term growth. Despite the current decline in revenue and earnings, the company is still expected to outperform the market in the long term. The BUY rating is maintained, with a revised target price of US$203, indicating positive potential for the stock. Investors are advised to consider the recovery in the second half of 2022 and the long-term contributions from AI Cloud.