EBSCN·2025-07-31 03:50Investment Rating - The report maintains a "Buy" rating for Baidu Group-SW (9888.HK) with a target price of HKD 109.4, compared to the current price of HKD 85.50 [6]. Core Insights - Baidu Group is expected to face revenue pressure in Q2 2025, with total revenue projected to decline by 4.2% year-on-year to RMB 32.52 billion, and core revenue expected to decrease by 3.6% to RMB 25.72 billion. The core non-GAAP operating profit is anticipated to drop by 42.5% to RMB 4.03 billion, with an operating margin of 15.7% [1][4]. - The online marketing business is under pressure due to the transitional phase of AI integration, leading to a 15.7% decline in online marketing service revenue. However, as product capabilities improve and commercialization paths expand, revenue is expected to gradually recover [2][4]. - Non-online marketing business revenue is projected to grow by 27% year-on-year to RMB 9.54 billion, driven by strong performance in cloud services and advancements in AI-driven models [3][4]. Summary by Sections Online Marketing Business - The core revenue for Q2 2025 is expected to be RMB 25.72 billion, down 3.6% year-on-year, with online marketing services revenue declining by 15.7% due to the impact of AI transformation [2]. - Baidu's search products and interaction methods are being upgraded, enhancing user experience through multi-modal queries and structured answers [2]. - The launch of the ad-free intelligent search app "TizzyAI" aims to improve content aggregation and logical reasoning capabilities [2]. Non-Online Marketing Business - The core non-online marketing revenue is expected to reach RMB 9.54 billion, a 27% increase year-on-year, with significant contributions from cloud services [3]. - The "萝卜快跑" service continues to grow, with a 75% increase in order volume year-on-year, and a strategic partnership with Uber aims to expand autonomous driving services [3]. - The continuous evolution of the Wenxin large model technology enhances multi-modal and reasoning capabilities, potentially increasing enterprise deployment willingness [3]. Profit Forecast, Valuation, and Rating - Due to ongoing pressures in advertising demand and intense industry competition, the profit forecasts for 2025-2027 have been revised downwards, with non-GAAP net profit estimates adjusted to RMB 18 billion, RMB 19.8 billion, and RMB 22.3 billion respectively [4][5]. - The valuation multiples for advertising, smart cloud, and other businesses have been lowered to 10.0x PE, 2.5x PS, and 2.5x PS, respectively [4]. - The report emphasizes the strong demand for AI models and anticipates continued growth in Baidu's cloud business, highlighting the importance of AI search monetization progress [4].