【行业研究报告】百度-Factoring into near-term pandemic impact but recovery is in sight

20Jan202320Jan2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateBaidu(BIDUUS)Factoringintonear-termpandemicimpactbutrecoveryisinsightThefirstwaveofpandemicinfectionandsoftmacrohaveimpactedshort-termrevenuerecoverytrajectoryofBaidu’sadsbusiness,andweighedongrowthofcloudbusiness,asitimpactedprojectdeploymentanddigitalisationspendingbudgetofenterprises.ButBaidu’sadvertisingbusinessisregainingrecoverytrajectoryinJanuary2023afterpandemicimpactwanes.Lookinginto2023,Baidu’sadvertisingbusinesscouldrecoveralongwithmacroenvironment,anditscloudrevenuegrowthhasthepotentialtoreaccelerate,asBaiducloudhasestablishedcompetitiveadvantageinverticalslikesmarttransportation,manufacturing,energy&utilitiesandpublicservices.Baidu’sstrategicmovetocutcostandimproveoperatingefficiencycouldaidastableprofitabilityofitsCorebusinessin2023,inourview.Factoringintothepandemicimpact,wecut2022-2024Erevenueby1-3%,butliftourSOTP-basedTPby1%toUS$195.2onbetterearningsoutlookandincreasingvalueininvestmentportfolio.BUY.SpringFestivaltravelseasonthenextkeytowatchforadsrecovery.WeestimateBaiduCore’sadvertisingrevenuetodecline8.3%YoYin4Q22(3Q22:-3.6%)duetothefirstwaveimpactofCOVIDinfection.Withinfectionimpactwanes,BaiduhasnoticedaconsistentrecoverytrendofitsadsbusinessinJan2023,whiletheoverallmagnitudeofrecoveryforadsbusinesshingesonCOVIDinfectionafterSpringFestivaltravelseason.Thatsaid,recoveryinadvertisingbudgetandsentimentcouldcomealongwiththerecoveryinmacroin2023,andBaiduispoisedtodriveitsadsbusinessrevenuebackongrowthtrack,aidedbyitsenhancedmobileecosystem,inourview.WeforecastBaiduCore’sadsrevenuetogrow7%YoYin2023E,followinga6.5%YoYdropin2022.MarginimprovementofCloudbusinesswellontrack.WeforecastBaiduCloud’srevenuetodecline9%YoYtoRMB4.8bnin4Q22,owingtosoftmacro,delayedprojectdeployment,andthereclassificationimpactofApolloSelfDriving(ASD)revenue.However,wearestillexpectingBaiduCloudtoachievepositiveYoYrevgrowthin4Q22ifexcludingthereclassificationimpactofASD.BaiduCloudmaintaineditstargettoachievebetterthanindustryaveragerevenuegrowthin2023andtoachieveabreakevenin2024-2025.BaiduCloudisprioritizingprofitabilityoverscaleexpansion,whichcouldbenefititsmarginimprovementin2023,inourview.Costcontrolandoperatingefficiencyimprovementaidsstableprofitability.Overall,weforecastBaiduCore’srevenuetodecline5.3%YoYtoRMB24.6bn,andtorecordnon-GAAPoperatingprofitofRMB4.9bnin4Q22E,translatinginto19.8%OPM,up1.1ppYoY.Baidu’sstrategicmovetomaintainprudentcostcontrolandstriveforoperatingefficiencyimprovement,aswellasprioritizingprofitabilityoverscaleexpansionforitscloudbusinesscouldaidstablenon-GAAPOPMlevelin2023E.Weforecastnon-GAAPOPMtoimproveto21.6%in2023E(2022:21.5%).TargetPriceUS$195.20(PreviousTPUS$192.80)Up/Downside49.4%CurrentPriceUS$130.62ChinaInternetSaiyiHE,CFA(852)39161739hesaiyi@cmbi.com.hkYeTAOfranktao@cmbi.com.hkJiSHI,CFA(852)37618728shiji@cmbi.com.hkWentaoLUluwentao@cmbi.com.hkSophieHUANGsophiehuang@cmbi.com.hkEasonXUeasonxu@cmbi.com.hkStockDataMktCap(US$mn)46,405.0Avg3mthst/o(US$mn)105.052wHigh/Low(US$)167.35/76.57TotalIssuedShares(mn)355.3Source:FactSetShareholdingStructureRobinYanhongLi16.5%Source:HKExSharePerformanceAbsoluteRelative1-mth16.0%11.9%3-mth27.7%24.0%6-mth-7.4%-5.2%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY20AFY21AFY22EFY23EFY24ERevenue(RMBmn)107,074124,493122,527134,683144,846YoYgrowth(%)(0.3)16.3(1.6)9.97.5Adjustednetprofit(RMBmn)22,020.018,830.020,341.522,041.424,192.7EPS(Adjusted)(RMB)63.9353.5357.2661.4366.76ConsensusEPS(RMB)56.6265.1675.26P/E(x)13.142.353.220.017.8ROE(%)12.85.12.66.66.8Source:Companydata,Bloomberg,CMBIGMestimates