HTSC·2025-07-17 10:46Investment Rating - The investment rating for the company is maintained as "Buy" [5][6]. Core Insights - The ongoing AI transformation of the company's search products is expected to exert pressure on its core advertising revenue growth in 2025. However, there are signs of marginal improvement in user data, with a mild increase in MAU year-on-year [1][2]. - The company's recent entry into the autonomous driving market overseas may provide significant long-term growth opportunities, warranting close attention to its collaborations and commercialization progress [1]. - The company has launched several new search applications and features, including a major redesign of its search box and the introduction of the AI search app TizzyAI, which is expected to enhance user engagement [2]. Financial Projections - The forecast for the company's core advertising revenue in Q2 2025 is expected to decline by 16% to 16.1 billion RMB, reflecting the short-term impact of the AI transformation [2]. - The total revenue for the intelligent cloud segment is projected to grow by 25.5% to 6.4 billion RMB, driven by increasing demand for AI training and inference in China [2]. - The non-GAAP operating profit for Q2 2025 is estimated at 4.1 billion RMB, representing a 41% year-on-year decline, with a corresponding non-GAAP operating profit margin of 15.8% [2]. Earnings Forecast and Valuation - The non-GAAP net profit forecasts for 2025, 2026, and 2027 have been revised down by 17.2%, 16.1%, and 14.8% to 20.9 billion RMB, 24 billion RMB, and 26.3 billion RMB respectively, primarily due to the slow recovery of high-margin advertising revenue [3][10]. - The target price for the US stock is adjusted to $91.50 and for the Hong Kong stock to HK$89.90, corresponding to 10.8x, 9.4x, and 8.7x non-GAAP PE for 2025, 2026, and 2027 [3][14]. - The valuation of the core advertising business is estimated at $39.2 per ADS, while the AI cloud segment is valued at $43.9 per ADS, reflecting a discount compared to industry peers due to the ongoing AI transformation [14][15].