Tianfeng Securities·2024-09-21 08:03Investment Rating - The report maintains a "Buy" rating for Baidu Group with a target price of HKD 137, indicating an expected upside of over 20% [1]. Core Insights - Baidu's Q2 2024 total revenue was HKD 33.9 billion, showing no year-on-year growth, while Non-GAAP operating profit was HKD 7.5 billion, up 2% year-on-year [1]. - The report highlights the acceleration of AI Cloud services, with AI Cloud revenue reaching HKD 5.1 billion, a 14% increase year-on-year, driven by generative AI and foundational models [1]. - The report emphasizes the importance of Baidu's core online marketing business and its potential for future growth, particularly as the advertising industry shows signs of recovery [1]. Summary by Sections Financial Overview - Baidu's Q2 2024 revenue from Baidu Core was HKD 26.7 billion, a 1% increase year-on-year, while online marketing revenue was HKD 19.2 billion, down 2% due to limited visibility in advertising client improvements [1]. - Non-online marketing revenue was HKD 7.5 billion, a 10% increase year-on-year, primarily driven by the smart cloud business [1]. AI and Technology Development - The report notes that Baidu is leveraging a unique four-layer AI technology stack to optimize and upgrade the ERNIE model, enhancing its capabilities in large language models (LLM) and generative AI [1]. - The average monthly active users for Baidu in June reached 703 million, a 4% year-on-year increase, with the proportion of search results containing generated content rising from 11% in mid-May to 18% [1]. Market Position and Future Outlook - The report anticipates that Baidu's advertising revenue may see upward momentum in the coming quarters, with projected revenues for FY2024-2026 at HKD 136.2 billion, HKD 150.3 billion, and HKD 167.3 billion respectively [1]. - The report assigns valuation multiples for Baidu's advertising, cloud business, and iQIYI non-advertising revenue at 8x P/E, 3x P/S, and 14x P/E respectively, supporting the target price of HKD 137 [1].