2026-01-23 00:24Investment Rating - The report maintains an "OUTPERFORM" rating for Baidu Group [2] Core Views - Baidu's operating cash flow is expected to remain positive in Q4, supported by prudent spending and the integration of AI tools in operations [4][13] - The listing of Kunlun Chip (KLX) is anticipated to unlock significant valuation for Baidu, with potential revenue comparable to Cambricon [5][14] - Apollo Go is set to accelerate its global expansion in 2026, which may further support Baidu's stock performance [15] Financial Summary - Baidu's revenue for FY25 is projected at RMB 128.7 billion, a decrease of 2.4% year-on-year, with a net profit of RMB 18.6 billion, down 31% [3][11] - The core business is expected to generate an adjusted operating profit of RMB 14.1 billion, corresponding to a margin of 13.8% [11] - For Q4, total core revenue is estimated at RMB 25.8 billion, reflecting a year-on-year decline of 6.9% but a quarter-on-quarter increase of 4.5% [12] Valuation and Recommendations - The report employs a Sum-of-the-Parts (SoTP) valuation method, estimating a total market cap of approximately HK$481.8 billion or a target price of HK$178, corresponding to a 24x PE for FY26 [6][14] - The valuation breakdown includes traditional search ads, AI cloud, AI SaaS, AI ads, and other segments, with significant contributions from the Robotaxi and Kunlun Chip businesses [6][15]