20230120-招银国际-Factoring_into_near-term_pandemic_impact_but_recovery_is_in_sight_6页_1mb

Baidu (BIDU US) Summary

Core Content

Baidu is currently experiencing a recovery from the short-term impacts of the pandemic and weak macroeconomic conditions on its advertising and cloud businesses. The company has implemented cost-cutting and efficiency improvement strategies, which are expected to support stable profitability in 2023. Despite a decline in revenue in 2022, the outlook for 2023 is more optimistic, with potential for growth in both advertising and cloud segments.

Main Points

• Advertising Recovery:

  • Baidu's advertising revenue declined by 8.3% YoY in 4Q22 due to the first wave of the pandemic.
  • Recovery started in January 2023 as the pandemic's impact waned.
  • The full extent of recovery depends on the post-Spring Festival travel season economic conditions.
  • Baidu is expected to see a 7% YoY growth in advertising revenue in 2023E, aided by its enhanced mobile ecosystem.

• Cloud Business Performance:

  • Baidu Cloud's revenue is expected to decline by 9% YoY to RMB4.8bn in 4Q22, primarily due to soft macroeconomic conditions, delayed project deployments, and reclassification impacts.
  • However, it is still projected to achieve positive YoY growth when excluding the reclassification impact.
  • The cloud business aims for growth above industry averages in 2023 and to achieve breakeven in 2024-2025.
  • The company is focusing on profitability over scale, which should improve margins in 2023.

• Profitability:

  • Baidu Core's non-GAAP operating profit is forecasted to reach RMB4.9bn in 4Q22E, with an OPM of 19.8%, up 1.1pp YoY.
  • For 2023E, the non-GAAP OPM is expected to rise to 21.6%, indicating improved operating efficiency.

• Earnings Forecast:

  • Revenue is forecasted to decline slightly in 2022E but to recover in 2023E.
  • Adjusted net profit is expected to grow from RMB20.3bn in 2022E to RMB24.2bn in 2024E.

Key Financial Metrics

Valuation and Target Price

• Target Price: US$195.20 per ADS (up from US$192.80).
• SOTP Valuation:
  • Baidu Core: US$59.1 (up from US$55.6), based on 7.0x 2023E non-GAAP PE.
  • Apollo ASD: US$22.5 (down from US$23.8), based on 2.0x 2030E revenue and a 13.0% WACC discount.
  • Baidu Cloud: US$40.4 (down from US$45.1), based on 4.8x 2023E PS, inline with Chinese cloud peers but below overseas average.
  • Net Cash: US$60.3.
  • iQIYI and other investments: US$12.9 (up from US$6.4), with a 30% holding discount applied to the share price.

Forecast Revisions

• Revenue:

  • 2022E: RMB122.5bn (down 1.4% from previous forecast).
  • 2023E: RMB134.7bn (down 2.2%).
  • 2024E: RMB144.8bn (down 3.3%).

• Gross Profit:

  • 2022E: RMB58.4bn (down 2.0%).
  • 2023E: RMB65.3bn (down 1.3%).
  • 2024E: RMB71.2bn (down 2.8%).

• Non-GAAP Net Profit:

  • 2022E: RMB20.3bn (unchanged).
  • 2023E: RMB22.0bn (up 7.5%).
  • 2024E: RMB24.2bn (up 0.5%).

• Margins:

  • Gross Margin: Expected to rise from 47.7% to 49.2% by 2023E.
  • Non-GAAP Net Margin: Projected to increase from 16.4% to 16.7% by 2023E.

Analyst Ratings and Recommendations

• CMBIGM Rating: BUY.
• Target Price: US$195.20, representing 22.0x and 20.2x 2023/2024E non-GAAP PE.
• Valuation per ADS: US$195.20, representing 182.3% of total valuation.

Investment Outlook

• Baidu's strategic initiatives, including cost control and efficiency improvements, are expected to support profitability and recovery in 2023.
• The company's cloud business is gaining traction in key verticals and is expected to reaccelerate growth.
• The overall valuation is supported by improved earnings outlook and the value of the investment portfolio.

Analysts

• Saiyi HE, CFA
• Ye TAO
• Ji SHI, CFA
• Wentao LU
• Sophie HUANG
• Eason XU

Stock Data

Shareholding Structure

Share Performance

12-Month Price Performance

• Image referenced but not included in the summary.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months.

Important Disclosures

• The information in this report is for informational purposes only and not tailored to individual investors.
• Past performance is not indicative of future results.
• The value of investments may fluctuate and is not guaranteed.
• CMBIGM is not liable for any loss or damage arising from reliance on the information in this report.