BIDU(09888) 华泰证券·2025-01-17 04:10Investment Rating - Maintains a "Buy" rating for Baidu Group-SW (9888 HK/BIDU US) [6] Core Views - Baidu's revenue growth in 4Q24 is expected to face short-term pressure due to a mild macroeconomic environment, AI-driven business transformation, and the exit of the Jiyue business [1] - Baidu Core 4Q24 revenue is projected to decline by 5.1% YoY to RMB 26.08 billion, with non-GAAP operating profit at RMB 4.15 billion, reflecting a 6.6pp YoY decline in non-GAAP operating margin [1] - Key catalysts for future valuation include: 1) AI-driven improvements in search advertising, 2) strong growth in AI cloud revenue, 3) faster-than-expected expansion of the Apollo Go business, and 4) stronger-than-expected shareholder return initiatives [1] Financial Forecasts - Baidu Core 4Q24 advertising revenue is expected to decline by 8.6% YoY to RMB 17.51 billion, driven by reduced ad spending in sectors like real estate, transportation, and healthcare [2] - AI cloud revenue is projected to grow 14.0% YoY to RMB 6.48 billion, driven by increased demand for GPU-related AI cloud services [2] - The exit of the Jiyue business is expected to negatively impact Baidu Core's revenue and adjusted operating profit by RMB 3 billion and RMB 900 million, respectively, in 4Q24 [2] - Non-GAAP net profit forecasts for 2024/2025/2026 are revised to RMB 24.6/27.2/30.0 billion, reflecting downward adjustments in iQiyi and Jiyue-related revenue forecasts [3][11] Valuation and Target Price - The SOTP-based target price for Baidu's US shares is adjusted to USD 115.4 (from USD 119.8), and for HK shares to HKD 112.3 (from HKD 116.4) [3][16] - The new target price implies 11.3x and 10.3x 2025/2026E non-GAAP PE, respectively [3] Segment Valuation - Baidu Core advertising business is valued at USD 78.1 per ADS (HKD 76.0 per share), based on 8.0x 2025E PE, reflecting slower-than-expected AI-driven ad revenue growth [16] - Baidu AI Cloud is valued at USD 27.7 per ADS (HKD 27.0 per share), based on 3.0x 2025E PS, reflecting slower-than-expected demand for AI cloud services [16] - iQiyi and other investments are valued at USD 9.6 per ADS (HKD 9.3 per share), with a 30% holding discount applied [16] Key Financial Metrics - Baidu's 2024E revenue is projected at RMB 131.5 billion, a 2.3% YoY decline, with adjusted net profit of RMB 24.6 billion, down 14.3% YoY [5][11] - Non-GAAP operating margin for Baidu Core is expected to decline to 15.9% in 4Q24, down from 22.5% in 4Q23 [14] - Baidu's 2024E adjusted ROE is forecasted at 9.25%, down from 11.86% in 2023 [5] Industry Comparison - Baidu's 2025E PE of 11.3x is below the average of 12.9x for online advertising peers like Alibaba, Tencent, and Google [18] - Baidu AI Cloud's 2025E PS of 3.0x is significantly lower than the average of 7.4x for cloud and AI peers like Amazon, Microsoft, and Google [18]