百度：Accelerating Gen AI-empowered business transformation

Investment Rating - Maintain BUY rating with a target price of US$183.0, reflecting a potential upside of 65.2% from the current price of US$110.75 [3][4][12] Core Insights - Baidu's 1Q24 revenue was RMB31.5 billion, up 1.2% YoY, aligning with Bloomberg consensus, while non-GAAP net income for Baidu Core was RMB6.6 billion, exceeding consensus expectations due to effective cost control [2] - The company is focusing on AI-related advertising and cloud revenue, which are expected to drive long-term business growth despite short-term volatility in ad revenue [2] - Baidu's Cloud business is generating sustainable operating profit with decent margins, and long-term margin expansion is anticipated with increased AI cloud revenue contributions [2] Financial Performance - Baidu Core's online ads revenue increased by 3% YoY to RMB17.0 billion in 1Q24, slightly above consensus [2] - Non-ad revenue rose by 6% YoY to RMB6.8 billion, accounting for 29% of Baidu Core revenue [2] - Gross profit margin (GPM) improved to 51.5% in 1Q24, up 0.2 percentage points YoY, while non-GAAP operating profit margin (OPM) was 23.5%, exceeding consensus by 1.6 percentage points [2] Revenue Projections - Revenue for FY24 is projected at RMB138.5 billion, with a YoY growth of 2.9%, and adjusted net profit is expected to be RMB27.7 billion [11][18] - Baidu Cloud revenue is estimated to recover to a 14% YoY growth in 2024E, driven by the ramp-up in Gen AI-related cloud revenue [2][11] Valuation - The SOTP-based target price of US$183.0 is derived from various segments, including US$69.2 for Baidu Core and US$32.2 for Baidu Cloud, reflecting a valuation adjustment in line with industry peers [12][13] - The valuation translates to 17/16x 2024E/2025E PE on a non-GAAP basis, or 11/10x if excluding net cash [12]